Posted by Madeleine Brooks
Sirius Satellite Radio Inc. and XM radio merged July 2008. Since the merger in late July, the stock dropped 40% and the price of the stock is less than a dollar. This downward plunge is resulting from debt payments that the company has accumulated over time. The merger was supposed to help build confidence in satellite radio and have subscribers pay monthly fees to hear the radio transmitted through special receivers. Sirius XM Radio Inc. CEO, Mel Karmazin, thought that sales would pick up during holiday season by giving its former subscribers a small selection to listen to for free of charge in hopes that they would consider being a full-time subscriber. Karmazin noticed that the retail market has been dead for quite some time due to the downturn in the
Because of the low stock price, Karmazin is thinking about taking the company private. Sirius XM Radio Inc. is currently refinancing $300 million in convertible bonds that are due in February 17th, 2009 and substituting the bonds with bank debt. Charles Ergen who is head of EchoStar Corporation controls the satellite-television market, Dish Network and EchoStar. Charles Ergen has attained a part of the $300 million debt of Sirius XM Radio Inc. Sirius recently just converted part of the $300 million debt into equity making the debt outstanding only $175 million now. Charles Ergen is looking to use the debt he just obtained by taking control of Sirius either inside or outside of bankruptcy. Mel Karmazin wants to avoid bankruptcy at all costs but having $350 million in bank debt that is due May 2009 and another $400 million in bonds that reach maturity in December 2009, it seems that may be an option to consider here.
References:
http://online.wsj.com/article/SB123386839153453945.html?mod=wsjcrmain
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