SIRIUS vs. Charter: Which Disappears First? (SIRI, CHTR)

Everyone knows about the old $1.00 stock limit for a regular NASDAQ listing.  This $1.00 listing requirment rule has been under a moratorium until after the first of the year so that NASDAQ would not have to boot off many of its key component or most active share volume stocks.  But many companies are already signaling an intent to conduct a reverse stock split or to take other actions to maintain a stock listing.  SIRIUS XM Radio Inc. (NASDAQ: SIRI) and Charter Communications Inc. (NASDAQ: CHTR) are both in the soup with NASDAQ requirements.  They are also debt-ridden with severely negative values on a tangible asset basis.  These and other issues at hand may make initial listing maintenance steps ultimately irrelevant.

SIRIUS XM Radio Inc. (NASDAQ: SIRI) lost over $4 billion, but lost far less when you consider the non-GAAPmeasurement from operations.  The real issue will boil down to the"cash flow positive, break-even, or loss" beyond this year.  Thecompany projected 19.1 million subscribers for the end of this year.It has roughly $500 million in cash and investments as ofSeptember 30, but that number might actually be a tad higher afterrecent moves. The company has debt coming due next year and if youtally up all of the long-term debt items that number comes close to $5billion (not all will be due of course).  Mel Karmazin has also said ithas been holding discussions over debt maturities.  With a share priceof $0.15, its market cap is roughly $500 million.  A reverse split hasalready been signaled here.

Charter Communications Inc. (NASDAQ: CHTR) lost $322 million in itslatest quarter and has essentially $20 billion in long-term debt.  Atroughly $6.5 billion in revenue, this is the most leveraged of alllarge cable operators despite its 5.6 million cable subscribers.Charter often carries such low cash on its books that if you didn’tlook through the cash flow trails you might even wonder how it operatesas a business.  Its cash as of last quarter was $569 million, but itcontinually keeps taking on more debt to raise cash.  On the stockfront, at a price of $0.22 its market cap is roughly $90 million.

Both companies are likely to have to conduct reverse splits to keeptheir listings after the first of the year.  After this, the issues aregoing to be how to deal with the debt loads.  Much will depend on theaccess to capital markets for deep junk-rated companies.Recapitalizations are the likely outcomes at both companies, andneither are good for shareholders.  Even if these companies stay aspublic stocks, it is easy to believe that an "OTC" status may be analternative outcome.

Jon C. Ogg
November 21, 2008