The New York Times is reporting (subscription required) that satellite radio operator Sirius XM is preparing for a possible bankruptcy filing. According to the New York Times, Sirius XM owes about $175 million in debt repayments that are due at the end of February that it will not be able to pay. Although a bankruptcy filing is unlikely to disrupt service to the more than 45 million subscribers to satellite radio service, it may signal the departure of some of the broadcaster’s A-list talent…like Martha Stewart or Howard Stern.
Sirius XM has assets of over $5 billion, but owes more than $3 billion in debts. The company has been leveraging its assets to cover the costs of establishing and maintaining a satellite network, as well as bringing high-profile talent like Howard Stern to the network. The global economic downturn has made it difficult for the company to find ongoing financing for its operations; similarly, the sharp decline in the automobile market means the company is earning less money from new vehicles sold with satellite radio technology installed.
A bankruptcy filing, if it comes, would make Sirius XM the second largest firm to file for Chapter 11 protection so far in 2009. A filing might also be a negotiating tactic to make Sirius XM more attractive as a takeover target: both the New York Times and the Wall Street Journal report that Sirius XM had previously been approached by EchoStar CEO Charles Ergen about a takeover, but had been rebuffed; industry watchers speculate Sirius XM might be going back to Ergen with a new proposal whereby ERgen could take on Sirius XM’s debt as an equity stake in the company, rather than insisting on being paid. Echostar currently owns about $400 million in Sirius XM’s debt.
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