Motley Fool: Worst Stock for 2009? Sirius XM Radio

Heading To Zero?

"My worst stock for 2009 is the equivalent of shooting fish in a barrel, except that the barrel's been drained and the fish have stopped flopping," writes JIM GILLIES for THE MOTLEY FOOL and posted on MSNBC. He writes:

"For me, 'worst' translates to 'uncomfortably likely to go to zero.' That's where I expect SIRIUS XM RADIO to find itself in 2009 through one of two routes: Either its cash burn, and the impossibility of meeting its massive immediate debt obligations, pushes it into the embrace of bankruptcy. Or it dilutes existing shareholders into oblivion if, by some miracle, it persuades its creditors to accept increasingly worthless stock in lieu of actually paying them back."

"At last quarter's end, SIRIUS had $360 million in cash versus $3.37 billion in debt. In the most recent quarter, which included two months of XM's standalone results, the company burned $86 million of cash on operations and a further $29 million on capital spending. Assuming a steady cash-burn rate, their coffers should be exhausted sometime this summer. Of course, the XM merger is supposed to provide cost synergies to curtail cash burn, but I think it comes as too little, too late. And this ignores how much cash SIRIUS needs on hand to grease the day-to-day wheels of business -- we assume it's greater than zero."

The Foolish bottom line? GILLIES concludes, "If I'm right, then SIRIUS has the choice of either bankruptcy or massive dilution to deal with its immediate debt obligations. And shareholders will, most likely, be wiped out. The broader market will most assuredly not suffer a similar fate. Thus, SIRIUS is an easy underperformer in MOTLEY FOOL CAPS."

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