Sirius Sells Out to Creditors

And then there was one…well, not quite yet. Sirius Satellite Radio, the smaller of the two satellite radio service providers in the United States, is still on the air – but barely.
On Tuesday the FCC approved the transfer of Sirius’ licenses to broadcast via satellite to the company’s largest creditors. A life-or-death deal hinged on this transfer taking place. In exchange for the licenses, a consortium of investment banks and private capital investment firms will swap approximately $700 million worth of debt and $200 million cash, and will also acquire majority stock control of the company.
Once the billion-dollar deal is closed, Sirius will have sold off its most valuable possession – its government-granted right to broadcast via satellite. Without the deal Sirius says it would have run out of cash by June and filed for Chapter 11 bankruptcy protection. That announcement came on Monday, just a day before the FCC approved the license transfers.
While none of the creditors exercise singular control over the satellite licenses, it would seem that if the company went belly-up they would probably go to those owed the most dough, pending FCC approval. Since Sirius has already demonstrated the ability to broadcast video as well as audio on its channels, I would not be surprised if the company moves away from radio and into something else, setting up XM Satellite Radio with a monopoly on mainstream satellite radio broadcasting.
(A side note – Sirius’ latest 10-Q filing with the Securities and Exchange Commission (filed Nov. 14, 2002) notes that its satellites “have experienced circuit failures on their solar arrays,” but it did not expect the burnouts to cause any problems with its radio signal. At the same time, Sirius is thinking about dropping its insurance coverage on the satellites, “in light of the increased costs and the probability of an insurable failure occurring.”)
At the end of last year Sirius had signed up 29,947 subscribers, each paying ~$13 a month for satellite radio service); XM claimed a total of more than 340,000 (at ~$10/mo) as of year-end 2002.
XM may be bigger than Sirius, but it is also bleeding money and just secured another round of loans and debt-restructuring, this one to the tune of $450 million. As part of this financing round, R. Steven Hicks – the man who helped build Clear Channel Communications (a longtime XM investor) – will assume a spot on the company’s board of directors. General Motors, Honda and the Bank of New York are also major players in this recent deal.
At the close of the NASDAQ stock market yesterday, Sirius stock was going for $1.37 a share while XM was trading at $4.10.