Sirius (SIRI) creditors may force out the company's CEO, Mel Karmazin. That threat may be leverage to keep management from taking the company into bankruptcy. The creditors know that they could be nearly wiped out if Sirius goes into Chapter 11. But firing Mel Karmazin after the company seeks court protection would not help their cause.
According toThe Wall Street Journal, "Some of the bondholders in the creditor group believe that Mr. Karmazin and his team jeopardized the company's liquidity by not immediately refinancing its debt in July after Sirius's merger with XM closed." If the company does file for Chapter 11, what happened seven months ago is now merely academic.
Sirius is in talks to stay out of bankruptcy court. Satellite mogul Charles Ergen may offer the company financing.There are rumors that he may grant Karmazin the chance to stay.
News reports about the fight for control of the company and the fate of its management obscure that largest single issue facing Sirius and raises the question of whether refinancing its debt will make a significant difference in whether the company can do well. The most important source of satellite radio subscriptions is new car sales.
Domestic auto sales fell by about 30% last year and pessimistic forecasts indicate that they could fall another 30% in 2009.That trend will undermine the chance that Sirius can reach the point of operating break-even. It also puts the company's growth rate, one of its attractions to investors, at risk.
Who controls Sirius is not the ultimate question. How it gets fixed in a recession is.
Douglas A. McIntyre is an editor at 24/7 Wall St.