Sirius XM: Bankruptcy On The Way?

Shares of XM Sirius Satellite Radio could be headed for nickel territory today on news that it's preparing to file for bankruptcy. The NYT said yesterday the company is working to prepare a possible filing less than a year after XM Radio and Sirius completed a difficult merger. Still, the threat of a filing could spark a buyout offer says the NYT:

Charles Ergen, who controls a satellite-television empire including the Dish Network Corporation and EchoStar, recently acquired the majority of a $300 million tranche of Sirius debt that matures next Tuesday.

Since the news about the debt purchase emerged, questions have surfaced over whether Mr. Ergen would make a bid to purchase Sirius. The threat of a possible bankruptcy filing could force Mr. Ergen to make a formal offer for the company now if he doesn’t want to go through an auction in bankruptcy court.

It could also compel Mr. Ergen to agree to convert his debt into an ownership stake in Sirius at a higher price than he originally considered.

Bloomberg says the filing pits Echostar's Ergen against Sirius XM CEO Mel Karmazin, who could be the loser if he can't do better than Ergen's offer of support. Sirius XM reportedly rejected a bid from Echostar back in December. Bloomberg highlights the drama:

It took 1 1/2 years for Sirius XM Radio Inc. Chief Executive Officer Mel Karmazin to complete the merger of the only two U.S. satellite-radio broadcasters. He may lose control of the company in half that time.

More:

Karmazin, who led Sirius’s $2.76 billion all-stock purchase of XM, said in an interview in August that he made an “ugly” debt deal to close the merger. Concerned that traditional radio operators might get a judge to block it, Karmazin said he accepted “unfavorable” terms on refinancing.

The company has always had its share of vocal critics, as well as a lot of die-hard fans (and not just of Howard Stern). The fact is Sirius XM still has almost 20 million subscribers and continues to grow. But, like everywhere else, funding is the thing and it's going to be tough to find a savior for the company in this environment. In the end it looks like the company should mainly be considered a victim of the recession. Being both debt-heavy and beholden to healthy auto sales for new subscribers puts Sirius XM right at the center of what might be the two worst parts of the economy right now. The service should survive, but there's a chance that this bankruptcy (if the filing happens) could be the conclusion of satellite radio's long, painful decline on Wall Street.