Sirius could file bankruptcy as early as Tuesday

Financially strapped Sirius XM Radio could file for bankruptcy as early as Tuesday if it cannot successfully negotiate with the holders of its debt, reports the AP.

The satellite radio company said Friday that it has exchanged more than $172 million of debt maturing in December for new debt due in 2011. But the company still has about $175 million of debt coming due this Sunday, which may be enough to prod the company into filing Chapter 11.

Sirius is fighting against attempts for control by Charlie Ergen, the chief executive of Dish Network Corp. and sister company EchoStar. Ergen bought much of a $300 million batch of discounted Sirius bonds that come due next week. Sirius had rejected a previous offer by Ergen for control of the company.

Liberty Media Corp. also is in talks with Sirius about possibly investing in the company.

More from the AP:

But the DirecTV Group Inc., a Dish rival controlled by Liberty Chairman John Malone, is not involved in the negotiations, according to a person close to the situation. The person spoke on condition of anonymity because he is not authorized to talk about the negotiations. Liberty's participation in the talks were reported earlier by The Wall Street Journal.

Analysts said they didn't think DirecTV would want a satellite radio business, nor its satellites. DirecTV, the nation's largest satellite TV company, has launched new satellites and is focusing on enhancing its TV service.

Sirius has about $3.3 billion in debt maturing between now and 2014.

On Friday, Sirius swapped 10 percent convertible senior notes due this year for senior secured notes due 2011. In return the debt holders will get an annualized 10 percent interest in cash, plus 2 percent in kind in 2010 and 4 percent in 2011. They also received a fee of $9.45 million, of which $5.1 million was paid in cash and the rest in Sirius common shares at 7.4 cents each.

For customers, service is unlikely to be interrupted, but the company may have to terminate contracts with high-priced talent like Howard Stern or Martha Stewart.

Furthermore, a bankruptcy would make Sirius XM one of the largest casualties of the credit squeeze: with over $5 billion in assets, it would be the second-largest Chapter 11 filing so far this year.

Much of the company's downfall can be attributed to the rise of Apple's iPhone and streaming Internet radio, Apple Core blogger Jason D. O'Grady writes -- making satellite radio look more like a stopgap technology than a true progression.

UPDATE 2:46PM: The official Sirius statement. Paragraph four has bankruptcy information (emphasis added):

SIRIUS XM Radio (Nasdaq: SIRI) announced today that XM Satellite Radio Holdings Inc., its wholly-owned subsidiary, had exchanged approximately $172.5 million aggregate principal amount of its outstanding 10% Convertible Senior Notes due December 2009 for a like principal amount of its newly issued Senior Secured Notes due 2011. An aggregate of $400 million in principal amount of the 10% Convertible Senior Notes due December 2009 was outstanding prior to this transaction.

The new Senior Secured Notes will mature on June 1, 2011. The notes will bear interest at the following rates: initially at 10% per annum paid in cash; from December 1, 2009 to December 1, 2010, at 10% per annum paid in cash and 2% per annum paid in kind; and from December 1, 2010 to maturity, at 10% per annum paid in cash and 4% per annum paid in kind. After the exchange, approximately $227.5 million aggregate principal of XM Holdings' 10% Convertible Senior Notes due 2009 will remain outstanding. The Company received no proceeds from the exchange.

The purchasers of the new Senior Secured Notes will be paid an aggregate structuring fee of $9.45 million, $5.07 million of which was paid in cash and $4.38 million of which was paid in the form of shares of the Company's common stock based on the closing sales price of the Company's common stock on February 12, 2009, which was $0.074 per share.

The exchange of 10% Convertible Senior Notes due 2009 for new Senior Secured Notes is part of a larger restructuring effort. The Company is in discussions with others with respect to transactions that could refinance some of its and its subsidiaries' indebtedness. These transactions may not be successfully consummated. If these transactions are not consummated, it may be forced to file for bankruptcy protection as early as February 17, 2009.

The new Senior Secured Notes and the shares of the Company's common stock were issued today in private placement transactions exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof and have not been registered under the Securities Act or any state securities laws. Unless so registered, neither the new Senior Secured Notes nor the shares of the Company's common stock may be offered or sold in the United States absent an applicable exemption from registration requirements under the Securities Act and any applicable state securities laws. This news release does not constitute an offer to sell, or the solicitation of an offer to buy the notes or the shares of the Company's common stock.

Additional details regarding the transaction will be available on the Current Report on Form 8-K the Company expects to file with the Securities and Exchange Commission today.

In other words, it's a coin-flip. In some ways, Sirius' crisis is a lot like the banking crisis -- one debt-ridden company, Sirius, taking on another one, XM. The toxicity just got too high -- XM would have fumbled on its own.