Sirius to dump debt?

Wall Street was full of rumours that pay-radio broadcaster Sirius-XM was planning bankruptcy and reforming itself financially. The New York Times quoted sources saying that Sirius’ CEO Mel Karmazin had instructed lawyers to examine the options facing the company, including Chapter 11 restructuring. However, there are other options.

One is that Charlie Ergen’s Echostar takes a more pro-active role – which he is very keen to take. One suspects that while Chapter 11 at least would see the company emerge more or less free of debt, the whole process for a business as complex as Sirius-XM could take forever, while there was no guarantee that the same management team would be in place at the end of the process.

A bankruptcy might also cost them more than they gain. Some useful savings might come from restructured contracts especially those taken out when Sirius was nose-to-nose with rival XM for every scrap of commercial advantage. But would key audio stars like Howard Stern stay on board?

Meanwhile Ergen still holds a slice of Sirius’ convertible debt and the Wall Street Journal implies that he and Sirius’ bosses are in some sort of dialogue. As of Sept. 30, Sirius-XM had $360m in cash or near-cash, an SEC regulatory filing shows. The company has $175m in bonds due to be paid next week on Feb 17. Sirius-XM is also obliged to keep at least $75m in wholly available cash to fulfil debt covenants.

The company has also parked $120m in a dedicated escrow account to protect its agreement to broadcast the USA’s Major League Baseball games. Finally, other than its obvious monthly costs and expenses, it has to find or roll-over $350m of bank debt due in May and another $400m in convertible bonds that mature in December.