I have been thinking about this crap ass deal, and I have come to a reasonable conclustion that makes sense to me. Yes it still includes a large COH and even FCF positive for the 4th Q of 2008.
I first think that Mel was planing on originally taking care of all the debt without any deal from any other company taking any major stack in SIRIXM. By using COH, dilution, extention of credit facilities and yes even reconverting some of the old converts for way better terms if needed.
I believe Charles Ergen Fricked the whole thing up. Until then Mel had it all under control the reason is simple, there was two possiblities for the 2 banks holding the credit facilities that needed to be extended. First extend and wait a few more years to get all their money back or dont extend and drive SIRIXM into bankruptcy. Then fight with all the other debt holders to maybe get pennies on the dollar some time down the road or even get restructured by a judge into a even worse term loan for the banks. There really was only one choice that was to extend the credit facilities. Now though with the banks having a choice between Ergen and Mel, that was simple for them they would have taken Ergen. Mel could not even say I will bankrupt the company because the banks would have been fine with that knowing they had someone else that would give them much more for the debt then a bankruptcy judge because they now had a buyer for the crap that SIRIXM owned that only could be used for satellite radio. As proof of this there were several articles that stated comments from many of the debt holders that: they would like nothing more then to work with Ergen. So now what does Mel do, he doesn't have enough COH even if the 4th Q brought in more FCF to pay off not only the remaining Feb debt but now the May debt that will not be extended. So he comes up with a deal with Malone that extends the remaining Dec. converts to keep those out of Ergens hands. Then buys the remaining Feb. debt leaving Ergen with little say in any bankruptcy proceeding. So now that leaves the Banks holding the credit facilities due in May back to the original decision of taking the company into bankruptcy and again only getting pennies on the dollar or extend. It is this reason they could also get by without a shareholder vote not because of Feb. debt but because the Banks would not extend as long as Ergen was in the picture. Mel could not pay it all off and still have enough to do day to day operations even with the most optimistic FCF positive projections. I believe that was why the deal was structured the way it was (in 2 parts) and why I cannot account for the loss of 360 million in COH (because they did not lose it it is still there). Now Mel also has the capital to put that satellite up that they have said was going up in the fall.
I guess we will see if I am right, because on the 17th if they still show 360 million in COH and/or have a FCF positive of some kind that pretty much only leaves the logic of what I just came up with.
It is the only logical thing I can think of.
P.S. While I still think the deal sucks. It was Ergen that raped SIRIXM. Malone was the one who at least gave SIRIXM a dinner and dancing before doing it