Today is D-Day for Sirius XM; Rescue or bankruptcy?


Tuesday morning update: Malone to the rescue! Click here.

This is truly going down to the wire. $175 million of bonds come due today (Tuesday, 2/17) and Sirius XM has already said it may file Chapter 11, as soon as today, if it can’t cut a deal to restructure its finances. Late Monday the Wall Street Journal reported that Sirius XM was close to a deal to have John Malone’s Liberty Media make an investment so the bonds due today can be paid off — and that a deal could be announced before the stock markets open this morning.

There’s also a new twist: According to both the Wall Street Journal and Bloomberg, major creditors may try to force Mel Karmazin out if Sirius XM seeks Chapter 11 bankruptcy protection. So, we wait to see if the Zen Master cuts a deal with either Charlie Ergen or John Malone to avoid having to head to bankruptcy court tomorrow.

Even if Sirius XM does end up in bankruptcy court, it is no slam dunk that the creditors would be able to force Karmazin out. The whole purpose of Chapter 11 protection from creditors for a company to reorganize is to give management some breathing room to straighten out the financial structure. Creditors would face an uphill fight to convince a federal bankruptcy judge that management should be tossed out and replaced with a court-appointed trustee.

Why do the creditors want Karmazin out? The attorney speaking for the creditors told both news outlets that his clients don’t think Chapter 11 is in the best interests of the company. It appears that the only other options were taking the offer from Charlie Ergen at EchoStar, or putting together an alternative with John Malone of Liberty Media. Since the only sure offer on the table was from Ergen, it appears the creditors preferred that as the best protection for their claims.

The attorney also warned against a “precipitous bankruptcy filing.” The February 17th deadline has been well known for some time, and talks to deal with it have been going on for some time, so it is hard to see how anyone could characterize such an action as “precipitous.”

RBR/TVBR observation: If not Mel, who? We wonder, just who would the creditors bring in to run a company that has never done anything but burn cash? We’ve said from the beginning that subscription satellite radio is simply not a viable business. No one has yet proved us wrong.