OKMONEY

Circuit City's Potential Buyers Offer Hope for Sirius Investors

sl62; I've been long SIRI for a long, long, probably too long of a time. I'd be embarrassed to tell you my average basis. Sirius won the battle, but NAB won the war. Here's what worries me: Sirius said in the annual shareholders meeting PPT it is looking for serious private investment; I read between the lines they're looking to go private. A secondary won't bring the money they need for debt service, let alone debt retirement. Automobile sales are not going to pick back up again. Sirius is never going to get the subscribers they need as a result when added to the basic contraction in the economy. Let's face it Sirius is a luxury item and will be real easy to cut out of any household budget. I don't like companies with a lot of debt, especially companies whose assets are hard to value with a short term debt that very well could render them technically insolvent. How do you value subscriptions that can be terminated, and are being terminated, in a New York minute. How do you value the talent, like Howard Stern; he could turn to coal in a Christmas stocking in a New York second. I know the figures Sirius puts on the balance sheets for these assets, but there's no tried and true way to determine their valuation methodology. Yes there are some analogies like cable TV, but I think our world of "Happy Motoring" is contracting or even dying as opposed to a growth market in TV. The spread between treasuries, CD's and corporate bonds tells me there's little confidence in the future of American business. Mel might get financing but it'll be a bone crusher like the deal ETFC made with the devil, Citadel, in November, 2007: 12.5 % springing lien notes and 20% equity for a song and a dance. Sirius is playing the business equivalent of that popular game we used to play in the infantry: loser dies; winner gets to fight another day and take a chance on being the loser. I know it's a dark thought, but Sirius is looking into a very dark abyss. Barring the president elect telling the American people to subscribe, or Warren Buffett taking a big equity position Sirius's hand may be forced into the world of Chapter 11 financing. There's PR and stigma to consider, but as long a subscribers get their favorite line up when they turn the radio on it won't matter. Look what Chapter 11 financing has done for the airlines. Too many people think the BOD has a fiduciary duty to the shareholders; quite the contrary; the fiduciary duty is to the corporation. At all costs the business of Sirius will be saved and, of course, at the expense of the shareholders. As far as GS goes don't you think they shorted SIRI all the way down? What about the new competition, RaySat and AT&T. Like I said at the get go; Sirius won the battle but lost the war.

Circuit City's Potential Buyers Offer Hope for Sirius Investors

sl62: My apologies if I offended you. You are also not the first to note my sometime perverse sense of humor. As an olive branch here's a little Chapter 11 101 [I've been doing this for 32 years now]:
Creditors are divided into classes. For example, secured, priority, unsecured and equity holders. Most often a Chapter 11 debtor is tremendously handicapped by its security agreements, mortgages, lock box requirements and various other forms of securitization of its assets such that secured creditors run the show in a Chapter 11. The very first hurdle is the use of "cash collateral". It's hard to think of a business entity that has not mortgaged its accounts receivable and inventory; that's "cash collateral" when the inventory is sold or the account receivable is factored. The Debtor-In-Possession cannot use cash collateral without permission from the creditor secured by the accounts receivable, inventory or other "cash collateral" items. If that creditor refuses to grant permission it's a trip to the courthouse. I don't know the specifics in Circuit City's case, but, clearly the creditors secured by items that can be turned into cash collateral agreed,but you can make book on the stranglehold provisions in the agreed order allowing Circuit City to use cash collateral. In essence the cash collateral creditors want to be made as whole as can be and only give up enough cash to keep operations generating their cash. Creditors secured by fixtures, real estate and other personalty want a section 363 sale of CC's assets [a sale free and clear of any liens or other encumbrances which will attach to the proceeds upon sale], or, a conversion to chapter 7, liquidation. Senior unsecured debt, bondholders usually end up as the only shareholders if a Plan is confirmed. Unsecured creditors, vendors, services, independent contractors, etc are usually SOL. Priority creditors, taxes, employee contribution plans, wages, rents, get paid before senior debt and unsecured creditors. You can bet there have been a few plans thrown around in CC's case but you've got to watch what you say and to whom because the Disclosure Statement has yet to be filed [yes, there's a case number; has been since the moment it was filed]. The disclosure Statement has been likened to a prospectus. The "Absolute Priority" rule says a Plan cannot be confirmed unless all prior superior classes of creditors have approved the Plan by a majority vote. So, the unsecured creditors cannot get a Plan approved unless the bondholders also approved the Plan. It gets a little sticky here because the absolute priority rule only applies to an "impaired" class of creditors, i.e. they'd be in a lesser economic position than they were before the 11 was filed. A court can "cram down" a plan even if an impaired class votes against the proposed Plan if it's in the best interests of all creditors; rarely happens. In CC's situation I think they're just running the clock selling all the inventory they can and will eventually end up being converted to a chapter 7. Quite frankly, from a purely economic perspective Sirius is an ideal chapter 11 candidate with a high potential for a confirmed Plan: Secured creditors stay in place, being secured by the subscription revenue stream; bondholders become stockholders; unsecureds go fly a kite. Mel is either a genius or is replaced, makes no difference because a year after emerging as a reorganized entity Sirius gets recapitalized by floating a new common stock issue. Economy might be good by then; a successful secondary, really an IPO, would put the old bondholders, now shareholders on easy street. How's that for financing the debt that comes due in February.

Circuit City's Potential Buyers Offer Hope for Sirius Investors

sl62: When you get a chance read 11 U.S.C. sections 1101-1141. Pay special attention to section 1129(b), commonly called the "cram down" provision. While you're at it read up on the "absolute priority" rule. As you probably don't know bankruptcy is not a high school subject. Why do people give legal opinions about something they know nothing about and are not even close to qualified to give an opinion. sl62, do you give medical advice too?