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Thread: subsidiary vs parent company

  1. #1
    LIBOR/TED SPREAD is offline
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    subsidiary vs parent company

    With Sirius being the parent vs XM the "child" what is law regarding what happens to parrent company IF subsidiary "child" defaults of Debt?

  2. #2
    Siriusowner is offline
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    Investors get screwed. If you want a longer answer please let me know.

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    jmm232 is offline
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    I have been thinking about this for some time now and can only come up with one possible scenario. If the XM subsidiary were to claim bankruptcy or default on XM's loans, the XM subsidiary could theoretically be liquidated. In this case, assets of XM would be sold off, including the license. This would be done at fair market value. The assets from the sale would go to creditors and anything left over would kick back to the parent company and shareholders. How much debt does XM have? If the license is as valuable as I think it is, it could fetch billions. Sirius could then end up with cash to pay down/off their own debt.

    From what I recall, Sirius took no liability in the XM debt. Benefit from your former competitions demise and use their assets to pay your own debt? Brilliant!?

    Some info about defaults and subsidiaries
    http://books.google.com/books?id=Lu3...m=10&ct=result

  4. #4
    jmm232 is offline
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    Quote Originally Posted by Siriusowner View Post
    Investors get screwed. If you want a longer answer please let me know.
    I do not think this is necessarily true. Only possible if the parent is a guarantor of the debt, which I do not believe applies in this case.

  5. #5
    Siriusowner is offline
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    They just wrote down most of XM value in the 3rd quarter. However, it is not that easy to write off the debt. Debt holders will come after the parent company. Remember in a BK, value holders (investors) are last in line to get paid and SIRI acquired XM debt which can in turn make the company go belly up.

  6. #6
    Newman is offline
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    From what I recall, Sirius took no liability in the XM debt.
    I do remember something to this effect as well. I will have to research it, but not over the hollidays, sorry.

    Homer or Tyler may know something off of the tops of their heads, but I dont.

  7. #7
    homer985 is offline
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    The XM debt is guaranteed against the XM assets -- there is no liability to the Sirius assets. And there is more than enough value in the XM assets to pay down the XM debt, IMHO.

    Subsidiaries go bankrupt all the time -- and they do not "bring down" the parent company in all cases.

    But this is an unlikely scenario regardless... IMHO.



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  8. #8
    LIBOR/TED SPREAD is offline
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    Xm debt

    Homer,

    Thanks for explantion, and I agree debt will get done. However I am looking at the million to 1 a portion of May or all December's Default how does it effect parent company? You beleive XM has value (I am guessing your speaking of spectrum) that will more then offset debt but how do you turn "value" to cash to pay down debt? What assets does both siri & xm have that they could possibly borrow agains i.e. paid off building, satellite's, other assets????? Thanks in advance!!!

  9. #9
    just sirius is online now
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    Homer

    any ideas what usually happens to a SP when a subsidery goes BK?

  10. Ad Fairy Senior Member

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