Sirius XM Headed for Bankruptcy?

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I hadn’t intended to cover the Sirius XM (SIRI) pre-bankruptcy chatter, however a personal request over on Twitter has encouraged me to offer my two cents. As I tweeted, it’s no secret that the merged satellite radio company has a ton of debt coming due – owning/launching satellites and (perhaps) overpaying talent adds up.

Under “normal” economic conditions, Sirius XM might have been able to renegotiate the debt and/or secure additional investment given their solid subscriber numbers and supposed efficiencies in bringing the two companies together. However, as most of us know, the credit markets are tight, investors are skittish, and consumers are pinching pennies. Bankruptcy may be the best thing for XM Sirius subscribers – allowing the company to unload and restructure much of this debt.

The wild card in how things unfold over the next week appears to be DISH Network and EchoStar CEO Charlie Ergen. It seems Echo recently acquired a chunk of Sirius’ debt and  may have even made an offer on the company. Which led me to speculate some of these public pre-bankruptcy disclosures are posturing for a better deal. Although Davis Freeberg, who’s much wiser in financial issues than I, doubts that particular point.

Regardless of how this plays out, I don’t see any immediate impact on subscribers. Satellite radio will carry on, for some time at least, regardless of who owns or runs the company.

7 thoughts on “Sirius XM Headed for Bankruptcy?”

  1. Thanks for the complement, but I’m no wiser then anyone else. I just don’t think that they’d spend money on a bankruptcy specialist like Alvarez & Marsal without intending to file. If they leaked this info two or three months ago, I would have agreed that they were trying to negotiate with their bondholders, but when you consider that the debt comes due on the 15th, it doesn’t give them enough time to play out a game of chicken. I’m hopeful that once they go into bankruptcy, they’ll be able to cancel the outrageous multi-million dollar deals for content and at least restructure a good chunk of their debt. If the company can emerge leaner and meaner, it should mean better service for their customers in the long run.

    One possible wrinkle for some subscribers would be what happens if you have a lifetime subscription on a Sirius gadget? Technically, I’d assume that they would become unsecured creditors and could see those subscriptions wiped out. Not sure if Sirius bondholders would force this or not because of the consumer backlash, but it is a risk that you take when you buy a long term service from a company with a lot of debt.

  2. Normally, I’d agree that those long-term or lifetime contracts wouldn’t be touched. But I also didn’t foresee their new pricing schemes making subscribing less attractive. We shall see… (Given that, I should probably amend my statement above to imply I don’t expect any interruption in broadcast rather than no impact on subscribers.)

  5. I have been riding this stock all the way down since the spring. I have learned my lesson of never buying stocks you have emotional attachment with.

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