With the share price of Sirius XM dropping into the teens, people are questioning the chances of bankruptcy now more than ever before. There are certainly dark spots for the prospects of Sirius XM. As readers of the forums have heard me say MANY times, I think that in order to be an informed investor, you have to know the positives as well as the negatives of any company in order to make sound investment decisions. Because of this, I am going to list many issues, both good AND bad about Sirius XM, and let the reader decide for themselves.

Negatives:

• Huge Debt: 1 billion due in 2009, 3.4 billion in total debt
• Financing problems: Banks are not lending
• Economy: People are not buying cars.
• Churn: Due to long term contracts and trials, the real effect of the economy may not be reflected in the churn for 6-12 months. It certainly wasn’t showing it in Q3 conference call, but churn may rise slightly in Q4, and then skyrocket in Q1 and Q2. That could have a very bad effect on the stock.
• Dilution: At this point, I think dilution would actually be preferable to BK, and everyone that voted against the share offerings and RS may want to reconsider. I would rather have my shares become a smaller piece of the company (with a chance of rising in the next year or so) than a useless piece of paper.
• R/S: Desperation at it’s finest. Is it time? It may very well be. (read reason above)
• Stern: His contract is up in January of 2011. About the time they finish off refinancing all of this debt for 2009, it will be time to start talking to Howard about renewing. What will that price tag be, both for keeping him AND for loosing him. Same goes for some other key talent, such as Bubba the Love Sponge.

Positives:

• Strong subscriber growth will outpace the low-balled projections, as will revenue.
• FCF: Company stated that in Q3, they were very close to break even, and they have no reason to doubt their history of positive FCF for Q4 would not continue. This will add some much needed cash to the coffers. 2009 will be totally break even for the year, even after CAPEX now. 2010 will be a huge year for Sirius XM, and stock will take off. (if it is still here)
• OEMS: What goes down will eventually come back up. In an article of Tyler’s, he gives evidence that when it comes to car sales, historically they come back in a BIG way. When it does, subscriber numbers will explode beyond ANYONES projections.
• Merger Synergies: The Company has already pointed to a large group of synergies that it was able to recognize in Q3 with only 2 months of operating together, and those numbers will only grow exponentially.
• Stock Price: The stock is priced for bankruptcy at this time. Any news at all about financing will breathe life into this company, regardless of how ugly financing may be. Sirius has projected that in 5 years they will be bringing in 1.4 billion in Free Cash Flow per year, so they should be able to start payind down debt in 2011, if not sooner. (Notice I said START paying it down, not pay it off)
• Possible increase in ad dollars: I agree with Brandon’s article where he states that the recent channel consolidation that happened last week, as well as the Best of Both offerings, now allow Sirius XM to market their product in a much bigger way to attract big name (and big dollar) advertisers to Satellite Radio. Now instead of advertising to a mere 9 million subscribers, advertisers can potentially be advertising to nearly 19 million subscribers.

In the end, it comes down to weather or not Sirius XM can weather the storm that will be the year 2009. What do you think? Feel free to post your comments here or over in the forums.

Position: Long Sirius.