When Will Sirius XM File for Bankruptcy?

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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 (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.

May day
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:

Wal-Mart Stores and Best Buy are Motley Fool Inside Value recommendations. and Best Buy are Motley Fool Stock Advisor picks. The Fool owns shares of Best Buy. Try any of our Foolish newsletters today, free for 30 days.

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. 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 (25) | Recommend This Article (54)

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 January 15, 2009, at 2:25 PM, Jetsen1052 wrote:

    BK = JUNE 11th, 2009

  • Report this Comment On January 15, 2009, at 2:28 PM, gregoryjbell wrote:

    date - 9/11/2009

  • Report this Comment On January 15, 2009, at 2:49 PM, hoffmal wrote:

    BK = February 23, 2009

  • Report this Comment On January 15, 2009, at 2:50 PM, ByrneShill wrote:

    I'll bite: June 1st 2009.

    Might not make it there though. Might not make it past next month's deadline. My second choice is March 1st.

  • Report this Comment On January 15, 2009, at 2:50 PM, Joemaui wrote:

    I think there is some good logic here.... Look at Wamu. This company is history and it continues to trade .04-.06

    Siri at .12 with the business and cash flow is a good calculated risk...Sure it could BK but I think it would have already happened if that was their intent... If I am right we all could make some "serious" cash from this point on.....even those who have lost could quickly get back on their feet.....50,000 shares for $6K Why not?

  • Report this Comment On January 15, 2009, at 2:53 PM, ByrneShill wrote:

    And btw since you wrote the article the stock is down to 11¢.

    A 3.5 Bilion share would dilute the stock 2:1. A 2:1 dilution after the stock has gone down 95% isn't that much worst than Chapter 11.

  • Report this Comment On January 15, 2009, at 3:15 PM, scottvan43 wrote:

    February 12, 2009

  • Report this Comment On January 15, 2009, at 3:39 PM, JakilaTheHun wrote:

    How dramatic of a reverse stock split are they going to need? 20-1? 50-1? 100-1?

    I get the sense that if Sirius can find some way to survive through the next year, it will be alright. Satellite radio is catching on and they basically have a monopoly now. Plus, cash flows actually don't look that horrible. A little improvement and this company can start being profitable long-term.

    However, as an early commentator suggested, is diluting its stock this badly any better than bankruptcy? I can see the reasoning behind offering stock for its debt obligations, but realistically speaking, it can't value the stock at the market price if it's doing that.

    Obviously, the stock is going to shoot upwards if it survives and its survival is largely dependent on its creditors. Given that, it would seem that the creditors are getting a little too good of a deal on this. Of course, Sirius doesn'tt have much hand here, do they?

  • Report this Comment On January 15, 2009, at 4:39 PM, ThongLover854 wrote:

    Here's my guess for their plan...keep knocking down early year debt with stock issues. Later in the year, Best of XM/SIrius purchases...Mirge purchases and merger synergies will kick in, giving them a few $100 million extra money to work with. By then, they will be able to restructure some of their late year debt and pay some off with new cash.

    At some point, a 20-1 reverse split will bring the stock back up and reduce the shares outstanding number. I don't know lots about this stuff, but this is my uneducated guess. At that point, the merger will be in full swing, they will have the stock to a more attractive dollar amount and institutional trading will increase and the short a$$holes will decrease.

    Final word...i hate FM. My friend just cancelled Sirius to cut back on costs and repurchased within 3 months because he couldn't handle the constantly flow of commercials. FM is horrible and sooner or later, with all the cars, music lovers, sports fans and tech junkies in this country, 20 million subs will be 30 or 40...that, my friends, will be a very good day.

    Final, final word. Does anyone think this year would be the year to really hit the Superbowl with a hilarious commercial? Something making fun of FM and explaining the merger and pushing the Mirge or some other new tech gadget for Sirius? A $2 million add could go a long way towards getting them going for this year!? Thoughts?


  • Report this Comment On January 15, 2009, at 4:45 PM, PokerRon wrote:

    BK won't happen. With 20 million subs providing revenues of approx. $2.5 billion, it's only a matter of months before cash flow turns positive and facilitates debt reduction.

  • Report this Comment On January 15, 2009, at 6:20 PM, MadMoney77 wrote:

    What day is the Feb debt due? Feb 1st or Feb 27th? Assuming its the 27th since the first isn't far off we would be hearing more about this debt load, and Mel's repeated comments about having the refi figured out by March 1st, my vote is BK on the last possible day to pay off the Feb debt. Siri does EVERYTHING financial at the last possible moment.

  • Report this Comment On January 15, 2009, at 6:53 PM, cos1000 wrote:

    My guess is never. Many of the subscribers to satellite radio are also shareholders. Bankruptcy protection that wipes out the common shareholder would be more than just bad marketing. This company needs to build momentum in order to survive. With all of the choices consumers have now and will have in the future, a BK filing after the extended FCC merger process would be devastating to the company and be a major set back for the technology. Current management needs to look at a Bankruptcy filing as anything but protection....

  • Report this Comment On January 15, 2009, at 7:09 PM, MosleySparks wrote:

    March 3rd, 2009.

  • Report this Comment On January 15, 2009, at 7:28 PM, Rojotu wrote:

    Im a Sirius subscriber (4 units) and a stock holder. I currently own 1000 shares and if Sirius hasnt filed C-11 by March 1 Im going to invest in a few thousand more, so I say no BK. But I have to say this BK talk sure increases the pucker factor.

  • Report this Comment On January 15, 2009, at 7:40 PM, BigVincent wrote:

    BK won't happen.

    Sirius/XM has been getting smart.

    Just to set up a sirius/xm subscription there is a $15 actavation fee. Accept for those that are lifetime subscriptions, roughly 19 million will eventually have to pay a $15 activation fee. Wether or not it's a 1 year, 2 year, or 3 year contract. These subscribers will eventually have to pay this fee.

    Just within 3 years with 19 million subscribers sirius/xm in 3 years makes 285million in 3 years off the activation fee alone!!!!

    Off of the subscriber base on average people pay for the typicall everything package ( of either XM or sirius) at 12.99 a month which equals 2.964 billion. This isn't accounting for people that just want the cheaper alacart music selection at 6.99 or the best of both sirius and xm packages. Roughly the average gross is going to be 2.964billion.

    If more subscribers are accounted for in the 4th quarter than expected and if churn still remains low under 1.7% sirius/xm will cruise right through there debt load and still become cash flow postive by middle of 2010.

    For those of you doubting this company and short selling it the way it is your making chump change to what the company will gain in less than a year from now.

  • Report this Comment On January 15, 2009, at 9:45 PM, cooljoe66 wrote:

    I do have stock in sirius...

    and I wish it does raise up but, If for some reason it does go under I guess it will happen on 1 April 2009

    "April fools joke???" no, this is my true guess...

    I bought a whole lot of this stock recently at a really cheap price and it is just bouncing around.

    I have a good sense this is the stock of the future.

  • Report this Comment On January 16, 2009, at 12:30 AM, crimus wrote:

    file chapter 11_Feb 12th 2009

  • Report this Comment On January 16, 2009, at 1:56 PM, lita8tor wrote:

    I owned XM stock and three of its units and was very disappointed with the programming changes that were made after the merger.

    I am skeptical about a Bankruptcy, but think Sirius would increase sales if it would stop trying to milk every penny out of current subscribers with its "The Best of _______" offers and just truly integrate the two services.

  • Report this Comment On January 16, 2009, at 5:36 PM, Siriously wrote:

    If they are going to do bankruptcy it will happen before the Feb refinance date, the same way that Nortell did this.

    Basically way pay Feb if your planning on BK. If they handle the Feb debt then I dont think BK is an option.

    My current position is long and I plan to load up if they refinance the Fed debt.

  • Report this Comment On January 16, 2009, at 10:42 PM, mookodp wrote:

    Let us not forget the Howard Stern factor. His contract is up in just under 2 years. I am one suscriber that came over just to listen to him. While I will probably stay even if he leaves, others will and we might see an exodus of a couple of million if he doesnt re-up. If he does re-up what will it cost the company this time? It certainly isnt going to be less than the 500 million he got previously. Its not like he needs the money after finishing this contract.

  • Report this Comment On January 17, 2009, at 11:32 AM, cptjacksparrow wrote:

    I purchased 6000 shares before the merger @ 2.95 a share. I had high hopes for this stock then. I still have high hopes now. I am a long term rider and I believe this company can bounce back and make us all a profit.

    With that said, if they do file BK and wipe out all the small share holders it will be a dark day around here. I don't think they will recover from that. They will hurt to many of us who will not re-invest after being totally screwed.

  • Report this Comment On January 19, 2009, at 1:51 AM, NeroSagetrade wrote:

    Oct 12, 2009 is D-Day

  • Report this Comment On January 19, 2009, at 2:44 AM, BurritoAzteca2Go wrote:

    December 21, 2009...On the day of the winter solstice when Sirius, the brightest star in the eastern sky aligns with the three stars on Orion's belt. Then after 3 or 4 days they will hand out bonuses and buy BMWs.

  • Report this Comment On January 19, 2009, at 4:00 PM, NMStockpicker wrote:

    Sirius XM will never file for BK because of one HUGE factor they can't change. If they do, they wipe out the common share holder, who in turn, are most likely also monthly subscription holders to the SAT service. Doing so would surly KILL the service as shareholders would walk away from SIRI in DROVES!!!

  • Report this Comment On January 19, 2009, at 4:26 PM, eltatio wrote:

    I am a subscriber and won't be renewing because of the changes. I went XM for the sole reason of wanting talk free music, well they killed that dead. All of my favorite channels now have the babylon feature that you can get for free via the radio. Listening to bad djs is painful enough but to also have to listen to advertising when you've paid for a subscription is unacceptable.

    I now use my iPOd 100% of the time, they do not have any kind of monopoly on talk free music, the fact that they missed such a big one is just another nail in the coffin.

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