Sirius XM filing Chapter 11 Bankrupcty

Looks like Sirius XM Radio may be preparing to file for bankruptcy. Recent news reports that Sirius "thinks there's a 'high likelihood' that Sirius XM will fail to repay or refinance its debt in 2009" states the financial research firm Moody. Sirius XM contains $5 billion in assets but has over $3.25 billion in debt. Sirius XM would be the second largest Chapter 11 filing this year. Sirius XM seemed to be putting things back into perspective when XM Satellite and Sirius merged last year but with auto sales declining (vehicles sold with Sirius XM radio made a up a large portion of its customer base)the company needed to rethink its position. Although it doesn't look like Sirius XM customers will loose their service but it looks as if the company may have to terminate contracts with Shock Jock Howard Stern and Martha Stewart. Howard Stern signed a contract with Sirius that allows him to make $100 million a year.

Satellite company EchoStar may be looking to takeover Sirius XM by purchasing the companies debt.However, it is yet to be determined whether EchoStar is purchasing convertible or bank debt:

"—If Echostar is buying the convertible debt due in February, it could either be making a play for equity (it would have the option to convert the debt to equity), or planning to get in line behind the bank debt holders in bankruptcy proceedings.

—If Echostar is buying bank debt, it could be looking to take control of the company during bankruptcy proceedings as, again, bank debt holders are first in line for the assets." (forbes.com)

EchoStar also owns $400 million of Sirius XM’s debt. If Sirius XM files for bankruptcy, EchoStar could seek in court to take over the company. However, EchoStar may be able to negotiate to convert its shares before bankruptcy at an attractive rate and gain control of the company.