(7)  Investments in Debt and Equity Securities

All investments in marketable debt and equity securities held by the Company are carried at fair value, generally based on quoted market prices and changes in the fair value of such securities are reported in realized and unrealized gains (losses) on financial instruments in the accompanying consolidated statements of operations. The Company elected the measurement alternative (defined as the costs of the security, adjusted for changes in fair value when there are observable prices, less impairments) for its equity securities without readily determinable fair values.

Investments in debt and equity securities are summarized as follows:

Pandora

On September 22, 2017, a subsidiary of SIRIUS XM completed a $480 million investment in newly issued Series A convertible preferred stock of Pandora (the “Series A Preferred Stock”). Pandora operates an internet-based music discovery platform, offering a personalized experience for listeners. The Series A preferred stock, including accrued but unpaid dividends, represents an approximate 19% interest in Pandora’s currently outstanding common stock and an approximate 16% interest on an as-converted basis.

The Series A Preferred Stock is convertible at the option of the holders at any time into shares of common stock of Pandora (“Pandora Common Stock”) at an initial conversion price of $10.50 per share of Pandora Common Stock and an initial conversion rate of 95.2381 shares of Pandora Common Stock per share of Series A Preferred Stock, subject to certain customary anti-dilution adjustments. Holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 6.0% per annum, payable quarterly in arrears, if and when declared. Any conversion of Series A Preferred Stock may be settled by Pandora, at its option, in shares of Pandora Common Stock, cash or any combination thereof. However, unless and until Pandora’s stockholders have approved the issuance of greater than 19.99% of the outstanding Pandora Common Stock, the Series A Preferred Stock may not be converted into more than 19.99% of Pandora’s outstanding Pandora Common Stock as of June 9, 2017.

The investment includes a mandatory redemption feature on any date from and after September 22, 2022 and therefore the financial instrument has been treated as a debt security. As the investment includes a conversion option, SIRIUS XM has elected to account for this investment under the fair value option. Any gains (losses) associated with the change in fair value will be recognized in realized and unrealized gains (losses) on financial instruments, net in the consolidated statements of operations. During the years ended December 31, 2018 and 2017, the Company recognized a $28 million unrealized gain and a $17 million unrealized loss, including transaction costs, respectively, on the investment in Pandora.

Pursuant to an Investment Agreement with Pandora, SIRIUS XM has appointed three of its senior executives or members of its Board of Directors to Pandora’s Board of Directors, one of whom serves as the Chairman of Pandora’s Board of Directors.

On February 1, 2019, SIRIUS XM acquired Pandora in an all-stock transaction valued at $2.9 billion. In connection with the acquisition, each outstanding share of Pandora common stock, par value $0.0001 per share, was converted into the right to receive 1.44 shares of SIRIUS XM common stock, par value $0.001 per share. Pandora’s Series A Preferred Stock was cancelled upon completion of the acquisition. This issuance of SIRIUS XM Common Stock in conjunction with the acquisition reduced our economic ownership in SIRIUS XM to approximately 67% as of February 1, 2019. The financial statements of Pandora for the year ended December 31, 2018 are not available and the initial accounting for the acquisition of Pandora has not been completed.

Unrealized Holding Gains and Losses recorded in Accumulated other comprehensive earnings (loss)

There were no unrealized holding gains or losses related to investments in debt and equity securities at December 31, 2018 or 2017.