A recent article focused on satellite radio and the merger of XM and Sirius. In an interview with CEO Mel Karmazin, he said:
Ironically, one rationale for the merger was the expectation that the combined company could borrow money more cheaply. “The bankers who covered the deal believed that one of the synergies of the merger was the ability to refinance at a lower level,” says Mr. Karmazin. Consider this: five years ago, Sirius, with 300,000 subscribers and no hint that Mr. Stern would be gracing its channel lineup, borrowed money at 2.5 percent interest. Those days are long gone. “Warren Buffett managed to get a 10 percent coupon from G.E. and Goldman Sachs,” says Mr. Karmazin, speaking of the interest rate that Mr. Buffett, the Omaha investing legend, was promised for his recent investments in both companies. “So if you are Sirius XM, what should the coupon be?”
Thus the Sirius / XM stock ticker, which peaked at $9 in 2005, now trades at 12 cents. Approximately $3B in debt is outstanding for the company; since they are not cash flow positive to any significant degree and raising money through stock offerings is extremely difficult when you are a penny stock, their balance sheet is killing the company, and possibly the entire satellite radio industry as a result.