Each week it seems brings a new clue into the potential manipulation of Sirius XM stock. I had mentioned several weeks ago, that Goldman Sachs was the current holder of approximately 130 million dollars worth of 300 million dollars in Sirius convertibles, due in February of 2009.

It is the root cause cited by message board bashers who want to instill fear and manipulate the stock price, by making unfounded statements regarding Sirius XM and bankruptcy protection. Most are quick to point to an SEC filing that refers to the period ending June 30, 2008, in which the company provides a disclaimer regarding the potential inability to refinance the bonds.

The reason these message board statements are unfounded are many:

  1. Sirius XM CEO, Mel Karmazin appeared on national television after the filing and made a public statement that it is not an option. Troubled companies do not do this.
  2. Second, Mel has personally been buying Sirius XM shares.
  3. The company is increasing revenue while decreasing costs. The balance sheet is heading in a positive direction. Failing companies do not have this luxury.
  4. In the company's most recent conference call, Mel outlined an extremely detailed plan for removing the convertible bond issue completely. Making the issue a moot point.

Which brings me to the point of this article. A lot of attention has been placed on the companies forecasts 18 months from now as the reason for decline of the stock price. It took an astute poster on the SiriusBuzz forums to lay out another plausible scenario, which again leads us back to the 2009 convertibles held mainly by Goldman Sachs.

The main point of contention is one particularly overlooked statement made by Mr. Karmazin at the recent call. Mel states:

"...You shouldn’t be surprised that the holders of the convert have been very anxious to talk to us about, “gee, we’d like to exchange that for another piece of convert”. That is not the interest that the company has..."

Mel told the bondholders, such as Goldman that they have no interest in diluting the stock further and that the company will not be paying more interest with a new convertible offered at a lower strike price. That was certainly enough to raise an eyebrow. It also means no dilution for the "short" story.

This can't sit well with Goldman, as I imagine anyone would want a piece of a company with multi-billions in revenue on the cusp of profitability. I'm sure they would embrace the idea of being paid to buy that company's stock at a substantial discount. I know I would!

The question is, how far might they and others go to force such a move? With no hope of receiving a new convertible, the only way to make money with the existing one is to supress the stock price to the benefit of their own short position. Each dollar the stock rises or falls represents 130 million dollars to the bond bullies. I suggest that any reader, who wishes to know more about this potential issue, visit this thread at SiriusBuzz to learn more.

Positions: Long SIRI

No Positions: GS