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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