Poll says bankruptcy for Sirius XM – so what?


Given our past reporting of the financial travails of Sirius XM, you’d probably be expecting us to jump on this bandwagon. But you’d be wrong. A poll is more about emotion than math.

Audit Integrity, an independent research firm, recently included Sirius XM on a list of 20 public companies with a high risk of filing for bankruptcy in the coming 12 months. The analysis put the risk of bankruptcy for Sirius XM at 9.04%. Of the companies on the list, only Rite Aid was worse, with a 10.54% probability. CBS Corporation was the only other media company to make the list, with a 6.22% probability of bankruptcy.

The list was based on a mathematical model which analyzed thousands of publicly traded companies for risk factors, including liquidity, leverage, profitability, how the market values the company and whether there appears to be any risk of fraud in the financial data disclosed by the company. So, Audit Integrity didn’t do any research into the specific companies, it just ran its mathematical model.

Then TheStreet.com took the list and asked readers to vote on which of the 20 companies was most likely to file bankruptcy. Sirius XM moved up from the #2 spot in the Audit Integrity list to #1 in the vote by people who made their opinions known on TheStreet.com. 34% said it was the most likely candidate for bankruptcy. Rite Aid was second.

This is not reality TV though. You don’t get to vote contestants off the show – or, in this case, into Chapter 11. Sirius XM is not heading to bankruptcy court because readers of TheStreet.com say it should or because a mathematical model says it is a risky company. The very real threat of a bankruptcy filing back in the early part of this year may still be clouding the perception of the company by some investors, but the company’s finances are quite different today.

RBR-TVBR observation: It’s all about the balance sheet and Mel Karmazin has done a terrific job of pulling Sirius XM back from the brink of the abyss. The deal he cut with Liberty Media kept Sirius XM from having to file Chapter 11 and, even with its subscriber count slipping, the company is now generating operating cash flow and appears to have no immediate risk of any default. Liberty was so pleased with its investment that it re-upped for part of a recent bond offering.

Will endangered broadcasters be able to do the same? Citadel Broadcasting is facing a contractual deadline with its lenders to have $150 million in cash on hand by January 15, 2010 – and has little prospect of being able to meet that target. Clear Channel’s parent company, CC Media Holdings, has been doing a complicated financial dance to stay out of covenant default this year and probably needs to see some improvement in the advertising marketplace to stay in compliance through 2010.