Monday, February 2, 2009

Sirius Faces Debt Payment in Test of Its Viability

Sirius XM Satellite Radio Inc. is facing an important test of its viability this month: how it handles $174.6 million in debt coming due Feb. 17.

Questions over how the company can pay it, along with $750 million more in debt due later in the year, have been dogging the company's stock price for months. Trading around $3 a year ago, shares in recent weeks have been stuck in the 10 cent-to-12-cent range.

But even if the company solves its looming debt deadlines, it will have merely bought time to prove to the investment community that its business of paid subscription radio has legs. And the high-interest solutions it seems likely to find would transfer more of the company's value to debt holders and away from stockholders, likely dulling any post-refinancing zip to the share price.

Given the economic environment, "it's a long road back," says RBC Capital Markets analyst David Bank. "And it's not as simple as refinancing the debt."

But dealing with the debt is a key first step. For months, Sirius has been chipping away at the bonds coming due in February, which originally totaled $300 million. By exchanging debt for stock in a series of transactions, Sirius has managed to reduce that debt to $174.6 million. Of course, that has diluted the value of each share, contributing to the rout in Sirius's stock price.

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