Sirius XM Prepares for Possible Bankruptcy
Last summer, Mel Karmazin was rattling off his trademark one-liners to talk up the future of Sirius XM Radio, the combined company he ran that had just been blessed by regulators.
He was planning to cut costs and expand a business that was already a fixture in the lives of millions of Americans. “Forty-three cents a day — it’s not even vending machine coffee,” he said at the time, parrying a question about whether the softening economy might hurt subscriptions.
But now Sirius XM, the satellite radio company, has problems with much bigger price tags. It has hired advisers to prepare for a possible bankruptcy filing, people involved in the process said.
That would, of course, be a grim turn of events for the normally upbeat Mr. Karmazin, Sirius XM’s chief executive, who had hoped to create a mobile entertainment juggernaut with stars like Howard Stern.
It is unclear how a bankruptcy would affect customers. Service is unlikely to be interrupted, but the company might have to terminate contracts with high-priced talent like Mr. Stern or Martha Stewart.
A bankruptcy would make Sirius XM one of the largest casualties of the credit squeeze. With over $5 billion in assets, it would be the second-largest Chapter 11 filing so far this year, according to Capital IQ. The filing by Smurfit-Stone, with assets of $7 billion, has been the year’s biggest to date.
Sirius XM, which never turned a profit when both companies were independent, is laden with $3.25 billion in debt. Its business model has been dependent, in part, on the ability to roll over its enormous debts — used to finance sending satellites into space and attract talent like Mr. Stern (who was paid $100 million a year) — at low rates for the foreseeable future until it could turn a profit.
The company’s success and failure are also tied to the faltering fortunes of the automobile industry, which sells vehicles with its radio technology installed and represented the largest customer base among Sirius XM’s 20 million subscribers.
Sirius XM owes about $175 million in debt payments at the end of February that it is unlikely to be able to pay.
Sirius XM’s problems could pave the way for a takeover by EchoStar, the TV satellite company, which has bought up Sirius XM’s debt.
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