Sirius XM Preparing Worst-Case Scenario

Sirius XM Radio said yesterday that the company may file for bankruptcy as early as Tuesday if it cannot find a way to renegotiate its debt payment of $175 million.

The nation's only satellite radio provider said it is trying to strike a deal with its debt holders to refinance, or find investors to shore up the company.

"These transactions may not be successfully consummated," the company said in a statement.

It was the first official word from Sirius on its race to save itself. In recent days, investors have reacted to a flurry of speculation over the fate of the satellite radio provider that hosts shock jock Howard Stern and domestic diva Martha Stewart.

The company's stock, which was trading near $4 a share one year ago, closed yesterday at 10 cents.

Sirius chief executive Mel Karmazin has been in talks in recent days with potential investors to buy the company's debt in exchange for a stake in the firm. Karmazin has reached out to Charles Ergen, owner of television satellite operator Dish Network, according to a source familiar with the matter.

Analysts said satellite television companies, including Liberty Media, would be most likely to invest in Sirius because their technologies would complement each other.

But some analysts doubt Liberty would want to invest in Sirius for its digital satellite radio business.

"Liberty involvement is more likely an effort by Sirius XM to attract a competing bidder . . . we don't believe (the) company is fundamentally interested in becoming involved in the satellite radio business," Vijay Jayant, an analyst at Barclays Capital, wrote in a report.

Sirius's most attractive assets are its 20 million subscribers, who bring in $2 billion in revenue a year, and the valuable radio spectrum the company owns.

But any potential buyer could be strapped with more financial problems down the line.

On top of the $175 million in debt due in days, Sirius XM has a total debt load of $3.2 billion. The company said it has refinanced a separate tranche of bonds worth $172.5 million that will mature in December for new debt due in 2011, a move to alleviate some of its burden.

But it has not found a way to pay the $175 million coming due early next week that must be paid or the company will break its agreement with bondholders. Bankruptcy would not result in the termination of service, analysts said, but could lead to a change in programming as debt holders would be able to force the company to break contracts with on-air talent like Stern and Oprah Winfrey.

The challenges facing Sirius are multiple. After an 18-month regulatory review of Sirius's merger with XM, the union was finally approved by the Federal Communications Commission and the Department of Justice just as the financial crisis had frozen credit markets and consumers clamped down on spending.

The company has never been profitable, and it is burdened with heavy costs to run its satellite technology and expensive contracts to fill radio programs. Sirius pays Howard Stern $100 million a year -- one-tenth of its debt due this year. And it has to share revenue from automobile subscriptions with carmakers that outfit new cars with satellite radios.

Moreover, the fast-evolving technological landscape has brought an onslaught of competitors to the consumer audio market. Sirius's $13-a-month radio subscription provides exclusive shows, but consumers are also getting access to more and more free media products online through sites like Pandora and digital music files downloaded to their iPods.

"This may be a chance for Ergen to get his hands on some valuable assets at a discounted price," said Tuna Amobi an analyst at Standard & Poor's. But he said any takeover would come with Sirius' continued financial and business handicaps.

"All the focus has been on the Feb. 17 deadline," Amobi said, "but there is another tranche due in May and another in December as well."