Buckle Up, Fools: Sirius XM's Wild Ride Continues

Owning Sirius XM Radio (Nasdaq: SIRI  ) these days is like riding a wild rollercoaster. There are sharp ascents, steep drops, and gravity-flicking loops. Lots and lots of loops.

Shares this morning traded up as much as 71%, after the company announced that it had refinanced $172.5 million worth of debt, pushing out the maturity for another 18 months.

The bad news is that this is part of the $400 million debt due in December, not the $174.6 million that needs to be paid back next week. That deadline looms on Tuesday, and the company's fate is still up in the air.

"The Company is in discussions with others with respect to transactions that could refinance some of its and its subsidiaries' indebtedness," reads this morning's press release. "These transactions may not be successfully consummated. If these transactions are not consummated, it may be forced to file for bankruptcy protection as early as February 17, 2009."

Is that a warning to its shareowners, or a threat to its creditors?

Probably a bit of both, because even Sirius XM may not know how this will all pan out. EchoStar (Nasdaq: SATS  ) has been reportedly buying up chunks of the debt that is due on Tuesday, but no one knows whether it's coming in as friend or foe.

The important takeaway from this morning's debt exchange is that it does alleviate the burden of repayments facing Sirius XM this year. As of right now, the company's on the hook for the following:

  • $174.6 million due on Tuesday.
  • $350 million due in May, with JPMorgan Chase (NYSE: JPM  ) and UBS AG (NYSE: UBS  ) holding $100 million apiece.
  • $227.5 million that matures in December; it was $400 million before this morning's maneuver.

Today's move is moot if the company can't come up with the money or debt swaps it needs to cover its near-term obligations, of course.

The creditors swapping their December debt for senior secured notes due in June of 2011 were paid $5.07 million in cash -- and roughly 60 million shares of Sirius XM -- in the move. It's a decent deal for the creditors, who retain the principal that they are owned, pick up 60 million lottery tickets, and have a little money in their pockets. If Sirius XM files for bankruptcy, at least they know they got a little money today.

However, if Sirius XM is willing to give up so much in stock dilution, instead of just forking over the total compensation equivalent of $9.45 million in cash, that just confirms how tight money has become for Sirius.

Between now and Tuesday, either Sirius or its creditors will blink. CEO Mel Karmazin is unlikely to get a whole lot of sleep during the holiday weekend.

Throw those hands up, Mel, and enjoy the ride. There's no way to know which way this rollercoaster turns from here.

More news than static on Sirius XM:

JPMorgan Chase is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz subscribes to both XM and Sirius. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (24)

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  • Report this Comment On February 13, 2009, at 4:54 PM, asm610 wrote:

    Rick,

    Creditor must know something if they were willing to swap a portion of their compensation, in common stock for pushing out the debt. Why wouldn't they have asked for the sum total in cash. I wouldn't take a chance with 60 million lottery tickets knowing the winner was already picked...if the carcass is lying there...I'd want my pound of flesh....and I certainly wouldn't give some of it away without the promise of something better in the short term.

  • Report this Comment On February 13, 2009, at 5:07 PM, afleetfeet wrote:

    asm610 -- I don't think it makes any real difference to these guys. They aren't playing with their own money.

  • Report this Comment On February 13, 2009, at 5:24 PM, asm610 wrote:

    Which makes them even greedier!

  • Report this Comment On February 13, 2009, at 5:29 PM, asm610 wrote:

    afleetfeet,

    Of course that is just my opinion! But these are not the kind of folks who ever LEAVE money at the table when its a sure thing...it's not in their nature. I don't know of any Wall Street type that would swap a sure thing for a lottery ticket unless they had better than regular odds that they would be able to cash in on those lottery tickets!

  • Report this Comment On February 15, 2009, at 9:50 PM, peymaan wrote:

    @ what price where the 60 million shares issued?

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