Execs see sub base reaching 400,000 next year
Sirius Satellite Radio said Thursday it has beamed in a $1.2 billion recapitalization plan that will keep it on — and in — the air through at least mid-2004.The beleaguered radio satcaster announced a deal to swap $1.2 billion in debt and preferred stock for new common shares in the company, giving Sirius much-needed financial breathing room as it tries to ramp up the hugely expensive new delivery platform. The company already has spent more than $1 billion and has only 14,000 subscribers since going live this summer, though execs said the sub base should explode to 400,000 through next year as carmakers such as Ford, Nissan and DaimlerChrysler begin offering the subscription service in their new vehicles. Under terms to be further spelled out to creditors and shareholders over the next 30 days, Sirius will swap $700 million in debt and $525 million in preferred shares for common stock, and issue new stock that will bring the company’s total shares outstanding to 960 million. The moves will reduce the company’s crushing debt load substantially — debt service and payment on principal was costing $12 million per month — while bringing in $200 million in operating capital. The cost to current shareholders: their ownership stakes will be diluted to about 8%. Combined with recent cuts, contract renegotiations and other streamlining, CEO Joe Clayton said in a conference call, the company’s unfunded needs have dropped from about $600 million to $75 million between now and a projected breakeven point in 2005. Company execs said they have several initiatives to close that remaining gap without having to seek more outside investment before reaching that point, at about 2 million subscribers. “This is a remarkable achievement, particularly given the current difficult financial environment,” Clayton said of the plan. “It’s a crucial step in our efforts to strengthen the company.” Sirius’ new money is coming from long-time investors, $150 million from Oppenheimer Global Group, with private-equity firms Apollo Management and the Blackstone Group splitting the balance.Sirius, which launched its 100-channel subscription radio service in July, warned in late summer that it only had enough cash on hand — about $250 million — to operate through the second quarter of 2003. Earlier this week, the company missed a $720,000 interest payment on its convertible debt, prompting credit-rating agency Standard & Poors to lower its rating to “D.” During the conference call, a Sirius exec told a convertible debt-holder that it expects to miss another upcoming payment and that the best deal available for debt-holders will be the conversion deal. The company has already had the plan approved by holders of about 75% of its stock, but if it doesn’t achieve at least 97% buy-in, it will have a bankruptcy plan in readiness, execs said. Still, investors registered their approval of the lifesaving deal in Thursday’s markets, bidding Sirius shares up nearly 60% to end the day at $1.32. The stock has tumbled from a high of $13 last January amid uncertainty over the future of satellite radio and competition from its better-established rival, XM.