Is Bankruptcy In The Cards For Sirius XM?
News came out late in the day that Sirius XM has hired advisers to prepare for a possible bankruptcy filing. The result on the equity was nearly instantaneous as after hours trades took the stock down well below a dime.
While the reaction was that this news was unexpected, it shouldn’t have been. Rumors that a bankruptcy plan surfaced in December at the shareholder meeting. When I was asked about it, my answer was simple. The company having a plan in place for bankruptcy was prudent business. The existence of a plan does not mean that it will be used. It simply means that it is an option among many that is on the table.
Now, with the news surrounding Charles Ergen, a possible bankruptcy scenario has to be considered, either forced, or through the company itself.
Sirius has hired Alvarez & Marsal; Simpson, Thatcher & Bartlett; and Evercore Partners to look various options that may well include a bankruptcy plan. Evercore, Simpson, Thatcher & Bartlett have been working with Sirius XM for quite some time.
Some of the quotes attributed to this latest news should be very concerning to shareholders. However, everyone must also consider that the company, nor Ergen have made any definitive statements. So far this has been a battle of “people close to the company” or Ergen. We should not forget all of the people who were “close to the company” that predicted the merger time and time again, only to see it delayed for months afterward.
The New York Times stated, “Sirius has been working with the restructuring expert Joseph A. Bondi of Alvarez & Marsal and the bankruptcy lawyer Mark Thompson of Simpson, Thatcher & Bartlett to help prepare a Chapter 11 filing, people close to the company said. The documents and analysis are close to being completed and a filing could come within days, according to a person familiar with the matter.”
That was enough to make a selling frenzy happen in after hours, and to send e-mail alerts flying like never before. Should investors rely on this latest news? That is a personal decision for each investor. They need to consider their risk tolerance and seek advice from a financial advisor to reach a decision that best suits them.
From my perspective, the news is not shocking given the recent events. There is a large stakes poker game happening here, and the shareholders are the chips on the table. Ergen is building leverage. The question is whether Karmazin has an ace up his sleeve. With $175 million due on debt in a few days time, and and a substantial payment to Major League Baseball also coming due, the company needs about $225 million. Should they take care of those issues, the next hurdle is in May.
As has been reported by many sources, the leak of bankruptcy news may force Ergen’s hand earlier than he would like. In the end, if Ergen wants Sirius XM Radio, he has the financial ability to make it happen. For shareholders, it is a wait and see situation.
One thing to remember is that there have been many opinions surrounding the Ergen issue, and this latest news about bankruptcy. Not all of these theories can be right. Taking a step back, and looking at the issue with fresh eyes tells us a few things that are most likely:
1. Ergen has an interest in Sirius XM Radio.
2. If Ergen were to make a move, FCC approval may be a lingering issue.
3. Ergen buying debt lowers his risk in his maneuver. If his plan does not go down the path he wants, he should still be able to recover at least a large chunk of his investment.
4. Sirius XM is having their hand forced in some ways. Putting a bankruptcy plan in place is prudent. Leaking that news is shows that the final outcome is not yet in place.
5. Sirius XM should have over $400 million in cash at the end of Q4 2008. Using this cash to handle the debt and the baseball deal would hamper the company, but could also buy them time. The question is whether they can negotiate the remaining debt, or whether Ergen has to wait out for the next cycle.
6. The company should be conducting their Q4 conference call in the next two weeks. With little news coming from Sirius XM, investors are quite nervous, as the next several days will be critical to the future of the company, as well as shareholders.
As investors, the only thing that can be done is to absorb the news, formulate your own opinion, and act accordingly. Until there is definitive word, this equity is on a roller coaster ride.
Position: Long Sirius XM Radio
I may sound like a lunatic but…I will throw another 500.00 at it and gain 10,000 more shares at .05…what the hell…no risk no gain.
I think we will be surprised how many buyers flood in tomorrow before the bell.
I just transferred another $1200 and am hoping to buy whatever I can at .06 in the morning….. but that’s just another lunatic talking to you right now.
If this turkey goes below .05 I am with you!!!
I told you so.
All the wishful thinkers here actually believed Mel is a genius.
If destroying a company’s stock value makes one a genius then yes, Mel is a genius.
As a practical matter SiriusXM, as we know it, will change drastically regardless of when the filing actually happens.
For the record, it WILL happen.
Tim,
I have always liked all the Basher’s odds better than those like myself who invest and believe in the technology and company. You have an easy position to come from… at every negative turn, you can come here and tell us that we were wrong…. to what end??
I believe in the technology.
When it comes to my money I do NOT think with my heart.
I no longer believe in the company for the following reasons.
1) Customer service is terrible.
Cause = Poor Management
2) The stock is essentially worthless.
Cause = Poor Management
3) Not a single usable portable unit that actually works.
NiceMac develops an iPhone app essentially over a weekend but Sirius can’t come up with one that works.
Cause = Poor Management
4) Not a single ‘cross-platform’ device available or even in the queue.
Cause = Poor Management
5) Poor use of it’s operating capital by making deals for talent that no one listens to.
Sorry, but NO ONE is listening to Martha Stewart on SiriusXM.
Cause = Poor Management
Get rid of the ENTIRE SiriusXM management team.
They have failed as managers and as fiduciaries.
Remove the current management and they have a chance.
If Mel is still left in charge, let it die.
so what if you have not been invested. why are you hear pleading to be heard….
Tim Markoski = Hartlieb
At least I have the courage to put my own name to my statements.
That’s a lot more than I can say for most of the “true believers” in here.
oh i get it now….. not!!!!!!!!!!
So what happens if they file Chapter 11? Will I still have my shares? They could possibly do a reverse split couldn’t they?
If they file, can they renegotiate these ridiculous deals they’ve made with Howard, NFL, MLB, …? If they do, then they could improve their situation greatly. I don’t want to lose my investment, but if a restructure helps them fix these deals, then maybe it’s for the better. Better IMO assuming I get to keep my shares, or they reverse split and my overall investment goes up because the share price finally goes back to normal.
If they file, your shares are worthless.
In the event of BK, it is likely your share will be cancelled. Ownership will pass to the debt holders starting with the secured and senior debt, then the bondholder and preferred shares, if any. If anything is left, the common shareholders would get it.
Well that sucks. Maybe I should get out now while I have something left.
Assuming cash on hand is sufficient to pay interest and principal on the current February debt (about $175 million), there would not seem to be any need to declare bankruptcy at this time. Then, with the $50-60 million due major league baseball, if for any reason SIRI could not pay that in a timely fashion, would that be a need for bankruptcy at this time or would whatever contracted default provisions trigger a penalty or a lawsuit, rather than a bankruptcy.
So, if it is true that if there is no current need for bankruptcy, the first possible need would be May (if, in fact money or continued financing were not available at that time).
Of course, the threat of bankruptcy can influence a potential suitor, and perhaps that is the case here.
Additionally, SIRI could do a reverse split and then float a large number of shares. Of course the stock price would go down because of the dilution and perhaps negative press, but that would bring in money to the company.
Please comment to let me know if my thinking on this is sound.
Thanks all!
Hey Mel… Hey Howard ! You guys are both filthy rich, right? The shareholders, who have invested a much larger percentage of their money than both of you ever have or ever would, are about to be wiped out. Both of you will still live a lavish, want for nothing lifestyle regardless of what happens with this entire fiasco. On the other hand, the common shareholders, who steadfastly supported this company and can least afford to lose their investment, will in some cases be financially devastated. At the very least, there will be a major short term negative impact on many people.
I was just wondering how the two of you feel about this situation, or if you actually do have feelings for anybody other than yourselves? Oh yeah, a couple of more questions! Do either of you have a conscience? Lastly, since you are both obscenely wealthy, and both of you have professed your love for satellite radio, why on earth would you not grow a set of balls and come to the support of the people who made your careers – the fans and the listeners?
Maybe people in your tax brackets don’t think about stuff like this. You really should, though. It would be the right thing to do.
Tell us how you really feel Steve O!!! LOL
Be well brother!! I am going down with the ship!!
e-mail Mel
MKarmazin@sirius.com
dread,
I’ll be right next to you; I always wondered what it would have been like to be on the Titanic! This is the next best (or worse) thing, I suppose. Don’t worry, dread – we’ll be OK. At the last second, Mel will throw us some cement filled life preservers and a book entitled “How to swim – by Stephen Hawkings.” Good old Mel – he always has our backs!
As always, great to hear from you!
You still got it Steve!!!
LOL!!
Tyler,
I know I have to decide what’s right for my investments in SIRI, but I just want to say thanks. When I look for news, etc., without fail I await your articles. You keep me calm and help me to think about the big picture.
So appreciate all your hard work and dedication.
Thanks so much for all the great read – please keep them coming…
I read something that said ergens offer still on table. Anyone?
NEW YORK (Reuters) – “Ergen has offered to inject several hundred million dollars of capital into the satellite radio company, though his plan does not involve buying out existing shareholders…”
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I understand that bankruptcy would wipe us out, but I’m very confused about any scenario wherein Ergen makes an offer that doesn’t include shareholders. What kind of a deal outside bankruptcy can legally and intentionally wipe us out? Can anyone explain this?
It would seem that MLB would restructure the contract if they want any money at all,,If Sirius goes BK, the they would get nothing,, so they will want to do something ot make sure they get something..
I am so happy to be able to get in around .06. This is a great oppertunity for all investors. I can not wait for Mel to Report on these silly hype stories of BK. It will be in the form of stating how everything was traded for shares and refinanced. What a RUSH!!!
so micheal hartleib was correct…on this point also.