News

Combine the challenge of establishing a start-up with the launch of an entirely new consumer electronics market and you've got the recipe for a highly volatile and explosive brew. But news of a successful $1.2 billion re-capitalization announced last week indicates that three-year old digital radio pioneer Sirius will likely remain intact—at least for now.

It has been a touch-and-go ride for both Sirius and competitor XM as they race to establish digital satellite radio services in the US and struggle to increase the ranks of their subscribers. XM got a shot in the arm last December when it announced a $450 million capital infusion that it claims will keep it alive well into 2004. Sirius says that with its own crushing burden of debt now lightened, it should also be humming into 2004 as it focuses on building its customer base.

According to a company statement, 91% of its debt holders have agreed to exchange their debt for common stock, in a re-capitalization that also exchanges the company's preferred stock for common stock. Once it was completed last week, the re-capitalization converted approximately $636 million in debt and $519 million in preferred stock into common stock.

The deal will also inject a much-needed $200 million in new capital from the company's major financial partners through the sale of newly-issued common stock. The additional cash is a vote of confidence from Sirius' investors, which include OppenheimerFunds and the Blackstone and Apollo Groups. Combined with existing cash on-hand, the company claims to have over $300 million available, which it estimates will keep it healthy into the second quarter of 2004. Apollo and Blackstone have also agreed to exchange all of their existing convertible preferred stock for shares of common stock and warrants to purchase common stock.

But the most important aspect of this deal, according to company representative Thomas Meyer, is that it provides Sirius with a debt-free balance sheet. "This positions us as the strongest company, financially, in the satellite radio space. Furthermore, it allows Sirius to concentrate 110% on building subscriber numbers and concentrate on business at hand."

Sirius' Joseph P. Clayton adds, "This is a major milestone for Sirius that now enables us to move forward with a strong balance sheet. With our commercial-free music and additional products coming online this year, including portable 'Plug & Play' and in-home units, and with our car manufacturer programs taking shape, we believe that 2003 will be a defining year and a catalyst for long-term success."