It's February, but Sirius XM Radio (NASDAQ:SIRI) doesn't have time to chase groundhog shadows, celebrate its first Valentine’s Day as a couple, or ponder the country's past presidents.
Come Feb. 17, the first of this year's three debt repayment deadlines awaits like a hungry tollbooth: lowered-arm blocking passage until the wide bucket is fed some serious change.
In the old days, forward-thinking drivers would load up on the required change before the tollbooths started coming.
Sirius doesn't have that luxury. Its change tray is bare.
The barriers between us
To the satellite radio provider's credit, it has already been eating away at this first burden. What was originally $300 million has been whittled down to just $174.6 million. The company has been persuading some of its creditors to swap debt for equity, where the real shame is that its shares can offer only so much given its pocket-change pricing.
Hold your applause until the end, though.
Yesterday's Wall Street Journal details other key challenges that the company has to overcome to make it out of 2009 alive.
- $43 million the NFL is set to receive this month as part of its programming contract.
- $350 million in the form of a term loan and revolving credit facility are due in May.
- $400 million in senior convertible notes come up in December.
- Sirius can borrow only up to $250 million more without triggering covenants on later debt.
The good news is that 2010 is free and clear of tolls to pay beyond its regular interest expense payments. The bad news is that the stock -- and even the December convertibles -- are priced as if the company has no choice but to file for Chapter 11 bankruptcy reorganization.
Reasons to be somewhat cheerful
I have said all along that I think Sirius will do everything possible to avoid bankruptcy reorganization. It may clean up the balance sheet and reshuffle leadership at the company, but it would be a credibility killer.
Most subscribers don't know the difference between bankruptcy reorganization and outright liquidation. Their knee-jerk reactions would be to cancel the service or avoid signing long-term contracts.
There are also a few important things to note about the needy mouths that Sirius has to feed this year. The NFL knows that Sirius needs it, just as Major League Baseball can bank on XM. Losing the NFL would cause a mutiny second only to the hypothetical loss of Howard Stern. However, this is also an incremental deal to XM. Oh, and it's also the off-season, so there are several months to repair any disrupted content deals.
The $350 million that is due in three months is also interesting. Lead lenders include JPMorgan Chase (NYSE:JPM) and UBS AG (NYSE:UBS), on the hook for $100 million apiece. The last thing they need is for the market to whack down their stocks if Sirius files for bankruptcy, forcing likely asset writedowns. They should be easy to sell on a refinancing deal, because time should be kind to Sirius.
Reasons to be somewhat fearful
Free-falling car sales at Sirius XM partners like Ford (NYSE:F) and General Motors (NYSE:GM) are problematic, but not fatal. Automakers have been slumping for several quarters yet Sirius XM has still managed to grow its subscriber base.
There is also the negative impact of the softening economy, though Netflix (NASDAQ:NFLX) has proved that consumers will take to low-priced entertainment subscriptions during recessionary times if the perceived value is there.
Sirius is also in a better position there, given its newfound pricing flexibility. It began offering lower-priced plans with limited channels shortly after last year's merger completion. The company is barred from raising rates on its regular plans for now, but it has telegraphed a rate hike on Web streaming and on additional receivers within the same account come next month.
That is a brilliant move that will find subscribers paying up to lock in years of discounted service at the old rate at a time when the company can use the cash flow.
Sure, there are countless threats to Sirius in the form of audio alternatives like Internet radio, Web-streaming smartphones, and just about anything Apple (NASDAQ:AAPL) does to improve its pole position in digital music.
This isn't going to make the tolls any easier, so let's hope that Sirius has the gift of gab to negotiate its way past the toll collectors.
Some other tall tales and short stories:
