As we wait to see how Sirius XM CEO Mel Karmazin will handle the company’s looming debt payments, including one that comes due on Feb. 17, there is no shortage of rumors on his next move.
Reports in today’s New York Times and the New York Post said Sirius may be days away from filing for bankruptcy and is in the process of completing bankruptcy documents through New York law firm Simpson, Thatcher & Bartlett.
Sirius XM and the law firm did not respond to a TWICE inquiry.
Analysts said Sirius may simply be posturing to force satellite TV mogul Charlie Ergen to place a bid to buy the satellite-radio company now, before it enters bankruptcy.
Analyst David Bank for RBC Capital Markets agreed that Ergen, if reports are true, would likely want to reach a deal with Sirius prior to bankruptcy. “It would be more difficult for Ergen to buy the company, if that’s his ultimate goal, having to deal with an auction in bankruptcy court as opposed to coming to some agreement [beforehand]. Bank suggested it would be better for all parties to reach an agreement outside of bankruptcy.
EchoStar CEO Ergen attempted to take control of Sirius XM late last year, but was rebuffed, and has purchased about $400 million of Sirius’s maturing debt in recent months, said the Wall Street Journal.
A Sirius XM bankruptcy would not be a small occurrence to car and home-stereo makers who use satellite-radio chips in their products. The chips are subsidized by Sirius. One supplier questioned last night if those subsidies or his short-term supply of chipsets is at risk.
One the plus side, if Sirius were to file for bankruptcy, it would allow it to renegotiate contracts with talent such as Howard Stern, who is three years into a five-year contract with Sirius worth $500 million.
Jimmy Schaeffler, chairman of The Carmel Group, said if bankruptcy is the path for Sirius, “I hope there’s a long-term appreciation for what satellite radio really can be. Perhaps with a clean slate, the folks at Sirius XM can really maximize the wonder of satellite radio.”
A satellite-radio company that was restructured or purchased, free of burdensome debt and over-inflated contracts or one with access to deep pockets, might be in a better position for the future, he suggested, noting, “Howard, when all is said and done, was a huge risk that probably didn’t pay off.”
Sirius XM’s financial troubles stem from its near-$1 billion in debt due this year, at a time when the credit markets are frozen and refinancing is difficult and costly.