Standard & Poor's Bashes XM Financing Deal

[John Corn]

Calling the terms and nature of the new deal "tantamount to a default," S&P analyst Steve Wilkinson says the exchange offer XM announced yesterday — to swap $325 million worth of notes due in 2010 for an identical amount of notes due 2009 — isn't good for noteholders. "Although the exchange offer will not alter the principal value of the notes or the interest rate," he says, "it will require noteholders to defer cash interest payments for a period of time, which is considered a material concession." Wilkinson also warns that if the swap isn't approved by the required 90% of noteholders, XM will be precluded from completing two other financing agreements that are "critical to its ability to continue as a going concern." S&P lowered its corporate credit rating on XM from "CCC-" to "CCC+" and warned that if the exchange offer is completed the issue rating on the new senior secured notes will be lowered to "D" and the company's corporate credit rating will be lowered to "SD," indicating a selective default.

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