Sirius-XM to go bankrupt?

One stock-picker has just described satellite radio broadcasters Sirius-XM as his “worst stock of 2009”, which is tough given that the year is barely 4 weeks old! Even worse perhaps, he predicts that Sirius-XM is so hamstrung by debt that it will go Chapter 11 sometime soon. Sirius-XM has some 19m subscribers.

Motley Fool writer Jim Gillies is the one to blame if you disagree, but his logic is quite compelling. Sirius-XM finished Jan 30 at just 12c a share, a horrible collapse on the year (last January saw Sirius trading at $3.89 although that was before its ‘merger’ with XM) and a market capitalisation of $421m (although it has an enterprise value of $3.43bn). There’s even been talk of the stock being thrown off the Nasdaq index because of its low price.

Just before Christmas the firm laid off the last batch of redundant workers and thus completed a 22% reduction (458) of the combined workforce, all as part of its efforts to reduce costs and boost profitability.

Not that all in the garden is bad news. CEO Mel Karmazin has been robust in defending Sirius-XM’s Q3 results (declared on November 10) as “very impressive” and citing a 16% pro-forma revenue gain despite the economic downturn and declining US auto sales which directly affects Sirius-XM. The latest change to its 2009 plan is to increase prices, and starting this March certain subscribers will see rates hiked, all designed to help raise income and pay off a massive $1bn of stubborn debt. Karmazin has repeatedly said he is confident that despite the economic squeeze he will be able to refinance the debt.

Basic subs rates, however, stay the same for most listeners thanks to FCC obligations. There is also good news from Apple, where its iPhone users will shortly be able to download the uSirius application to their phones.