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Sirius XM Nibbles at the Debt Monster

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Baby steps or not, at least Sirius XM Radio (Nasdaq: SIRI  ) is moving in the right direction.

The satellite-radio company will issue 108.1 million new shares to retire $15.6 million in convertible debt that is due next year.

The move itself is a drop in the bucket. The company still has roughly $1 billion in debt to refinance next year, and that's less than a third of its total outstanding debt. However, now that shareholders have cleared the way for the company to have as many as 8 billion shares outstanding, the printing press is obviously going to be put to good use in paying down its debt demons.

The institutional investors who are swapping their notes for stock aren't dumb. The exchange ratio values Sirius at $0.144 a share -- a significant premium to yesterday's close of $0.12 -- but they are also getting out ahead of their fellow debtholders.

Sirius wouldn't be trading this low if investors didn't fear a bankruptcy filing, a move that may cash out creditors for pennies on the dollar.

Sirius certainly doesn't want things to get that far. How quick will consumers be to renew their subscriptions or sign up for lifetime plans if the company is forced to file for bankruptcy reorganization? CEO Mel Karmazin will do everything possible to keep that from happening.

There are too many alternatives to satellite radio for Sirius to risk a bankruptcy filing, as it would not only confuse consumers but also burn many of its shareowners, who are also owners of Sirius and XM receivers.

Sirius XM didn't seem to have a of competition when it launched several years ago, when it was up against the bony terrestrial-radio operators. Nowadays, smartphones from Apple (Nasdaq: AAPL  ) , Research In Motion (Nasdaq: RIMM  ) , and Nokia (NYSE: NOK  ) can use their browsers to tune in to free Internet radio. Premium subscription services such as RealNetworks' (Nasdaq: RNWK  ) Rhapsody and Best Buy's (NYSE: BBY  ) Napster can also be streamed on a growing number of devices. Gee, even TiVo (Nasdaq: TIVO  ) owners can tune into Internet radio and Rhapsody.

At current prices, the ramped-up share-count authorization won't be enough to get Sirius XM through 2009. The key, ideally, is for Sirius XM to generate enough good news to get its share price moving higher. The higher it goes, the more likely that Sirius XM can print its way out of its debt mess.

It's the mother of all cleanup jobs, but at least Sirius XM is willing to get its fingernails dirty. I guess you have to if you don't want to be buried alive.

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Nokia and Best Buy are Motley Fool Inside Value recommendations. Best Buy and Apple are Motley Fool Stock Advisor picks. The Fool owns shares of Best Buy.

Longtime Fool contributor Rick Munarriz is such a fan of satellite radio that he subscribes to both Sirius and XM. He does not own shares in any of the stocks in this story, save for TiVo. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy likes algebra.

Read/Post Comments (5) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 23, 2008, at 12:06 PM, ByrneShill wrote:

    Quit hyping this penny stock. Or at least buy a few shares yourself.

    SIRI is going to chapter 11 in 2009, wheter you like it or not. They might be very well filing the paperwork as we speak.

  • Report this Comment On December 23, 2008, at 1:08 PM, DemianBohemian wrote:

    SIRI is not going bankrupt anytime soon and no, The Motley Fool is not hyping the stock in the pennies - they have been bashing it on a daily basis. They exaggerated the debt due in the their recent article on Dec.19th (Sirius Ammo for 2009) saying that there was $300 million due in Feb. '09 when it was actually 209 -210 million and even less now. I left a comment under their article pointing out their error, but they have yet to correct their untrue statement in the article. That is the kind of sloppy analysis you get from an outfit that was recommending XM as a stand alone company to their paid subscribers at over $30 a share. They can't even get their bashing facts straight.....

  • Report this Comment On December 23, 2008, at 1:23 PM, ByrneShill wrote:

    I wouldn't call an article that begins with "Sirius XM Radio (Nasdaq: SIRI) is moving in the right direction" a bash, but hey, feel free to be wrong.

    You're right on the sloppy analysis though. Not all TMF analyst are as bad as rick, and he's the one who rec'ed XM at 30$ back then. He kept hyping google at 700$ too. Rick is pretty much a counter-indicator. It's funny though how he never owns the stocks he hypes.

  • Report this Comment On December 23, 2008, at 8:31 PM, draland wrote:

    ! ! !

  • Report this Comment On December 29, 2008, at 3:45 AM, realguise wrote:

    Naturally, the most optimistic investor hopes to make a fortune on this penny stock. That being said, as an early investor ($8 SIRI) and having been burned so many times by bankruptcies, it's hard to believe. However, I'm left to eat my loss or buy down a soon-to-be-diluted penny stock. I'll give the Fools a pass since, in a perfect world without career politicians, the merger would have occurred quickly and smoothly. Synergies and planning would have been more timely...perhaps, even stabilization before the recession was realized. But...things happen...unexpectantly. So, we're now clinging to our hope like guns and religion. In this context, it's fair to say that SIRI is moving in the right direction. As an investor, I gotta believe. The rationale against bankruptcy makes sense. Then again, everything that happens doesn't make sense....

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