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Monday, September 18, 2006

Sirius Junk Debt (SIRI)(XMSR)(CBS)

Investors often wonder why Sirius trades at only $4 a share. Its subscriber base is growing faster than that of its rival XM Satellite Radio. The company has an anchor channel with the most popular radio personality in the country, Howard Stern. The company is run by Mel Karmazin, former head of CBS and a legendary radio executive.

Sirius is also heading into the best part of its year. With a line-up of channels for NFL games, listening among football fans will spike between now and February.

Most people on Wall St. would point to the Sirius losses, which have been over $1 billion over last four quarters based on the company’s filings.

But, that is only the top of the iceberg. Standard & Poor’s said last week that it would maintain its “CCC” debt rating on the company.

In common parlance, that debt is known as “junk”, as in very risky. And, Sirius has $1.1 billion of it. For a company that had only $150 million in revenue last quarter, that is a huge load.

Sirius faces a number of threats beyond XM as everyone from AOL to Apple grabs at the audio and video download businesses. Most new multi-media download devices will work in a car, or even through the car stereo.

Douglas A. McIntyre can be reached at He does not own shares in companies that he writes about.

They don’t call it junk for nothing.

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