CEO Mel Karmazin admits Sirius XM is in bad financial shape
The satellite radio company's CEO told reporters this past week that the company had to accept less than favorable debt terms to close the merger of the two companies.
The US Federal Communications Commission approved the deal on July 25, and the company wanted to move quickly to avoid any potential delays related to court challenges of the merger.
Part of the problem was XM's $1.25 billion in debt, which needed to be refinanced in order to meet repayment obligations as part of the merger agreement. While XM had already raised $700 million towards that, the company still needed about $550 million more.
Karmazin was forced to accept higher yield rates -- as investors demand more to put money into so-called "junk bonds" -- on the following Monday evening, July 28, or wait it out for more favorable rates. Waiting apparently seemed like too much of a risk.
"I hated it," Karmazin told Bloomberg. "It was unfortunate, but we did it."
The result is going to be a massive amount of debt repayment in store for next year. According to Sirius, the company will owe approximately $1 billion in payments. However, the company plans to deal with it "sooner rather than later" so it can move forward.
Sirius XM will begin by making about $400 million in budget cuts in the next year, including eliminating duplicate executive positions. Karmazin has repeatedly spoken of the opportunity for significant cost savings when he was drumming up support for the deal in both the private and public sector.