Crack open the death pool. It's time to start taking bets on when Sirius XM Radio (Nasdaq: SIRI ) will file for bankruptcy.
So, when exactly will Sirius XM file for Chapter 11 bankruptcy reorganization?
I'll tell you my answer. You'll laugh. I'll explain. You'll probably keep laughing.
In short, I don't see Sirius XM filing for bankruptcy protection this year.
Made you snicker, didn't I? It's probably because the battered stock is certainly priced as if the end is near. $0.12 at the close last night? You can't be serious.
However, there are plenty of reasons for Sirius XM not to give up on its common shareholders without a fight. It's also telegraphing signals -- like last night's SEC filing -- that indicate that the satellite radio provider is going to try to renegotiate its way out of this year's burdensome debt repayment milestones.
Rank and file
In an 8-K filing yesterday, Sirius indicated that it will exchange $13 million of the convertible note debt that is due next month for 100 million freshly minted shares. Diluting shareholders by printing a ton of new stock at $0.13 a share is certainly not ideal. It will weigh down the stock's eventual recovery. However, at this juncture, it's better to see Sirius take hits on its income statement rather than on its balance sheet.
It's not the first time that Sirius has swapped out its debt obligations for Sirius XM stock. With $174.6 million still to account for of the original $300 million convertible note that is payable next month, the company has been nibbling away at its debt load in earnest in recent weeks.
Shareholders granted Sirius the flexibility to issue as many as 3.5 billion new shares last month. A reverse stock split was also authorized, and may be necessary if Sirius winds up bloating its float to the point of never having a feasible shot at trading in the upper single digits again. You won't find too many fans of reverse stock splits, but there is at least one success story that went down that road in priceline.com (Nasdaq: PCLN ) .
The key takeaway here is that the company is using its power to print stock as a "get out of jail free" card for its February milestone. The rub is that it has two biggies still waiting:
- In May, $350 million in XM bank debt comes due.
- In December, a $400 million XM convertible must be repaid.
Work the math and you'll soon realize that even if all of Sirius' creditors warmed up to stock for cash, what remains of the 3.5 billion authorization won't get it past its May hurdle at its current share price.
Fate may be kind here. The moment it becomes clear that Sirius isn't going to file for bankruptcy protection in response to next month's tollbooth, speculators may start to file in. There are certainly plenty of other catalysts that may warm investors over the next four months:
- Sirius XM will report its first two complete quarters as a merged public company. If it's still on track to achieve operating free cash flow, upticks may happen.
- MiRGE, the first receiver that will be able to broadcast all of Sirius and all of XM, should be out before then. The move gives Sirius XM a shot to matter again in the aftermarket. Chains like Best Buy (NYSE: BBY ) , RadioShack (NYSE: RSH ) , and Wal-Mart (NYSE: WMT ) all sell aftermarket satellite radio receivers, but have had little to crow about given the confusion between the two services and the content consolidation. The first interoperable receiver may change that, creating renewed buzz at the retail level.
- Domestic automakers Chrysler, General Motors (NYSE: GM ) , and Ford (NYSE: F ) -- all partners with a vested interest in moving car receiver sign-ups -- may begin to bounce back with the governmental assist.
The next four months will be critical. If Sirius XM can't get its stock price moving higher after all of these potential catalysts play out, filing for Chapter 11 may be its only way out.
I still don't see it happening because the move would deflate morale at the company and create a defection of subscribers who don't understand that bankruptcy reorganization may wipe out common shareholders, but not kill the product itself.
Either way, these next four months will dictate the gamble that owning Sirius XM shares has become.
Up for the death pool? Post the date that you feel that Sirius XM will file for Chapter 11 bankruptcy protection in the comment box below. I'm sticking to my original vote -- that it won't have to file. If the company does ultimately file, I'll make sure I give the person closest to the actual date proper props in a follow-up column.
Some other tales of satellite radio fame: