Sirius XM Having Trouble Paying Off Debt

Chief executive Mel Karmazin said bank financing can be arranged.
Chief executive Mel Karmazin said bank financing can be arranged. (By Daniel Acker -- Bloomberg News)
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By Cecilia Kang
Washington Post Staff Writer
Wednesday, September 10, 2008

Newly merged Sirius XM Radio said yesterday that it doesn't have enough cash to pay back the $300 million in debt due early next year but that it has not looked into selling its Northeast Washington building to raise money.

Chief executive Mel Karmazin, addressing investors at Merrill Lynch's 2008 Media Fall Preview conference in Marina del Ray, Calif., yesterday, said that the credit market crisis has made it more difficult to raise funds but that he is confident that the satellite radio provider will resolve its debt troubles through bank financing.

The company has more than $1.1 billion in debt that will come due in 2009, with $300 million in convertible senior notes due in February.

"We are looking to raise bank debt, probably a term that will be a couple to three years, and that will take out that issue," he said.

When asked if he is planning to sell assets to raise capital, Karmazin said the company hasn't reached that point.

"Sure, XM has a building . . . but I don't think that that is material," he said. "Based on discussions at hand . . . nobody is saying to us that [there's] no debt financing to be done."

The D.C. building houses 800 former XM employees, many of whom have expressed concerns that the merger could lead to layoffs.

Sirius XM is expected to post an adjusted loss of $350 million this year, Karmazin said, after combining the nation's only two U.S. satellite radio operators. For 2009, he said, the company is on track to earn $300 million, as previously expected. The firm expects to have revenue of about $2.4 billion in 2008 and $2.7 billion in 2009.

Shares of Sirius XM fell 9.5 percent to close at $1.14.

Karmazin said the firm has been going through each line of expenses to cut costs and has found $425 million in savings, or $25 million more than previously expected.

The savings have come from job cuts among the top executive ranks and sales and marketing staff. Other savings have come from merging programming and general and administrative expenses.

"We are taking costs out of the organization every day," Karmazin said.

Management changes were made the first week after the merger, according to an internal July 31 memo confirmed by a source at the combined company who spoke on condition of anonymity because the restructuring is ongoing.

James Meyer, from Sirius, was named president of operations and sales of the merged company. Dara Altman, the former executive vice president of business and legal affairs for XM, became chief administrative officer. Patrick Donnelly, from Sirius, was named general counsel for the merged firm. David Frear was Sirius's chief financial officer and remains in the position for Sirius XM. And Scott Greenstein, of Sirius, became president of the entertainment and sports division.

Karmazin announced that Sirius XM will end the year with 19.5 million subscribers and a projected 21.5 million subscribers in 2009. The projections point to a slowdown in subscriber growth, as Sirius added 38 to its subscriber base last year and XM's subscriber numbers increased 18 percent.

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