It's a dog-eat-dog world...Sirius(ly)

UPDATE: Sirius XM Reiterates Bankruptcy Potential On Tuesday
February 13, 2009: 02:23 PM ET
http://money.cnn.com/news/newsfeeds/articles/djf500/200902131423DOWJONESDJONLINE000825_FORTUNE5.htm

(Updates throughout with details, background and comments from hedge fund manager and analyst)

By Nat Worden and Andrew Edwards

Of DOW JONES NEWSWIRES

Gamesmanship between media moguls in a high-stakes standoff over control of the satellite radio industry continued Friday as Sirius XM Radio Inc. (SIRI) reiterated that it could file for bankruptcy as early as Tuesday if it can't reach a deal to meet its mounting debt obligations.

That disclosure came as the embattled satellite-radio provider announced it exchanged $172.5 million in notes that come due in December for new notes that come due in June 2011.

The move doesn't address the $175 million in bonds that mature Tuesday and are majority-owned by satellite mogul Charles Ergen, according to The Wall Street Journal. Because of the pending bond payment Tuesday, many see Sirius's fate being decided this weekend.

The Journal reported Friday that Sirius XM has significantly narrowed the divide in negotiations with Ergen, who controls Dish Network Corp. (DISH) and EchoStar Corp. (SATS), over a deal to save itself from bankruptcy. But the country's sole satellite radio operator continues to discuss a rival offer from Liberty Media Corp., which is controlled by John Malone.

The situation pits Ergen and Malone - two longtime, asset-swapping rivals in the media business who are both based in Englewood, Colo. - against each other with Sirius XM Chief Executive Mel Karmazin trying to salvage his equity holdings in the company along with his legacy.

A spokesman for Sirius XM didn't respond to inquiries. Marc Lumpkin, a spokesman for EchoStar declined to comment, as did Courtnee Ulrich, a spokeswoman for Liberty Media.

A hedge fund manager with a stake in the outcome of the negotiations who declined to be identified said Friday's announcement likely means Sirius XM likely is telling debt holders that it's on the verge of a deal to avoid bankruptcy.

"You can't give them a new security and then go bankruptcy three days later," he said.

XM Sirius said it will pay debt holders accepting the exchange offer a fee of $9.45 million, with $5.07 million paid in cash and the rest in Sirius XM common shares. The company's stock was recently trading up 3 cents to 10 cents. Sirius XM's 9.625% coupon 2013 bonds traded up 13% to 46 cents on the dollar, according to Market Axess.

Ergen began acquiring Sirius XM debt in the fall. He has offered to inject about $500 million into Sirius XM and restructure the debt he holds in the company in return for control. His offer is contingent on the successful renegotiation of about $600 million in Sirius bank loans and about $200 million in other debt. Also, he is reportedly prepared to let Karmazin, who took the reins at Sirius Satellite Radio Inc. in 2004 and guided it through its arduous merger with XM Satellite Radio Holdings Inc., keep his job.

Ergen had made an unsolicited offer to take control of Sirius XM last year, but the company rebuffed it.

Liberty Media, which controls Dish Network rival DirecTV Group Inc. (DTV), has said it would make an investment that would enable Sirius XM to meet its credit obligations in exchange for a sizable stake, a person close to the situation told the Journal earlier this week.

Neither offer involves buying out Sirius's equity holders.

After the landmark satellite radio merger was approved in July, the company emerged from the regulatory process with its growing business buried under a crushing debt load that now amounts to $3.25 billion. Plans to refinance its debt were quickly dashed as the financial crisis began to envelop Wall Street, making it all but impossible for companies to tap the credit markets.

Meanwhile, deals with a number of major automakers have left the company's fortunes largely intertwined with the U.S. auto industry, which is fighting a weakening global economy.

"There is real value to Sirius XM underneath all its debt," said Frederick Moran, analyst with the Stanford Group Co. "Karmazin is doing the best he can to stave off bankruptcy, but it has been an uphill battle given the company's slumping subscriber growth and lack of cash flow and profitability."

Moran said the satellite television providers don't compete with Sirius XM, but they do see an opportunity in the company's troubles to get into a business that is complimentary to their own.

"[Satellite radio and television assets] could gel together nicely," Moran said. "If you're one of the two largest satellite TV providers with a multimillion subscriber base, you could move into radio and cross-market your offerings while sharing programming resources, and you could utilize your satellites and radio transmissions more fully."

-By Nat Worden and Andrew Edwards, Dow Jones Newswires; 201-938-5216; nat.worden@dowjones.com

(Kerry E. Grace contributed to this story.)


(END) Dow Jones Newswires
02-13-09 1423ET
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