FEBRUARY 15, 2009, 11:31 P.M. ET Creditors Eye Karmazin Ouster in Sirius Bankruptcy
By MATTHEW KARNITSCHNIG Wall Street Journal http://online.wsj.com/article/SB123475793626491661.html A group of Sirius XM Radio Inc. creditors says it is prepared to seek the ouster of Chief Executive Mel Karmazin and other senior executives if the company files for bankruptcy instead of cutting a deal with an investor that would allow it to remain solvent. "Creditors will act quickly and definitively if they perceive that management is acting in their own interest and not in the best interest of the estate," said Edward Weisfelner, a partner with Brown Rudnick LLP, the law firm representing the creditor group. "The board of directors should carefully consider the ramifications." In response to the creditor threat, Sirius said in written statement: "The management of Sirius XM is continually working to ensure the best possible outcome for the enterprise." Sirius's board, which includes Mr. Karmazin, is meeting this weekend to determine the company's course. A final decision is expected on Monday. If Sirius does file, creditors could ask the bankruptcy judge to remove management and put the company under the stewardship of an independent trustee. Winning such a motion would likely be difficult, say bankruptcy experts. Judges are usually deferential to management, barring gross mismanagement or evidence of fraud. Just showing management made mistakes or could have acted differently is not usually enough to prevail. Trustee motions are sometimes granted if supported by a majority of creditors but it is unclear how many of Sirius's debt holders would do so. Nevertheless, that some Sirius creditors are already contemplating such a move underscores both Mr. Karmazin's dwindling support and the difficult choices the radio operator's directors face in the next 24 hours as they decide the company's fate. 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 Sirus's merger with XM closed. At the time, at least two banks were prepared to refinance the company's debt but management decided to hold off in the hope that the market environment would improve, according to people familiar with the matter. Instead, conditions worsened. Just weeks later, the financial crisis hit, making it all but impossible for companies to refinance debt. Sirius warned on Friday that it may have to file for bankruptcy as early as Tuesday. About $175 million in Sirius debt comes due on that day. The company has been in talks with both Charles Ergen, the satellite billionaire, and John Malone, the cable television pioneer who controls DirectTV Group Inc., about a deal to resolve its crisis. Both parties have made offers that would allow Sirius to meet its immediate credit obligations in return for a significant stake or control. Mr. Ergen, who controls satellite TV provider Dish Network Corp. and technology company EchoStar Corp., has offered to put about $500 million into the company. He would also restructure the roughly $400 million in Sirius debt he holds. Those holdings include the $175 million in notes that expire on Tuesday, giving Mr. Ergen considerable leverage in the talks. Mr. Ergen has told Mr. Karmazin that he can keep his job if Sirius accepts the proposal, but the two men are longtime adversaries and it's unclear whether the Sirius chief executive would be willing to work for Mr. Ergen. Sirius's management has told investors in recent days that bankruptcy, which would enable the company to restructure under current management, may be its preferred course. It has yet to explain why filing for bankruptcy may be the more attractive option. Sirius is carrying a total debt load of about $3.25 billion. Bankruptcy experts say the company may argue that the offers on the table would only present a partial remedy to its troubles and that Sirius would be better protected in the long-term by restructuring under bankruptcy protection. Once in bankruptcy, Sirius could cancel costly contracts and would also be protected from its creditors. Some of the company's creditors don't accept the argument that bankruptcy may be preferable to solvency, however. "You have to be a little skeptical when you hear that from the same people who drove the bus into the wall," Mr. Weisfelner said, referring to Sirius management. "They can't use bankruptcy at creditors's risk as a 'Hail Mary' pass to keep themselves in power." The creditor group Mr. Weisfelner represents holds about $173 million in Sirius debt. The same group agreed on Friday to extend the maturity of the bonds, which originally were set to expire in December, until 2011. In return, Sirius agreed to secure the debt and make additional payments in both cash and stock. The two sides had been negotiating the changes for months. Extending the terms of that debt is a condition of Mr. Ergen's proposal, but it isn't clear if Sirius's management agreed to the change in anticipation of a deal. Mr. Karmazin joined Sirius to much fanfare in 2004. That same year, he left a senior role at Viacom Inc. following a power struggle with Sumner Redstone, the company's chairman and dominant shareholder. As Sirius chief executive, he pursued the company's controversial merger with XM Satellite Radio Holdings Inc. which received final approval in July after a lengthy regulatory review. A filing would wipe out the Sirius's shareholders, including Mr. Karmazin, who has invested much of his own money in the company. The company's market value has declined from $5.5 billion at the end of July when the Sirius/XM merger closed to just $368 million on Friday. -- ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 Mail: antunes at uh dot edu *********************************** * POST TO [email protected] * *********************************** Medianews mailing list [email protected] http://lists.etskywarn.net/mailman/listinfo/medianews
