Echostar mogul Charlie Ergen bought $175 million of Sirius bonds so he could force Sirius’s Mel Karmazin to hand over the company when it came time (now) for Sirius to refinance the debt. The bonds Charlie bought, however, are subordinated, which means that, if Sirius files for bankruptcy, Charlie gets nothing.
Meanwhile, Sirius boss Mel Karmazin, who hates Charlie, has run to John Malone at Liberty for help. John Malone’s no fool, though, so he’s holding Mel’s head under the water while Mel’s cash runs out, hoping that the oxygen deprivation will soon force him to cut a super-sweet deal.
Charlie Ergen’s bet is that Mel will get his pants sued off if he rejects an Echostar takeover because of a personal feud. Mel, meanwhile, is doing his best to show both Malone and Ergen that he’s happy to throw the company into bankruptcy just to wipe out Ergen.
Matthew Karnitschnig, WSJ: Mr. Ergen, who controls a satellite empire around EchoStar Corp. and Dish, quietly began amassing Sirius debt in the fall. He is now using that debt, including about $175 million in bonds that mature on Feb. 17, as leverage to try to force Sirius into a deal. Sirius, which carries a total debt load of about $3.25 billion, is nearly out of cash and will likely be forced into bankruptcy proceedings or a deal with Mr. Ergen if the company can’t secure funds to repay its obligations by Tuesday.
Mr. Ergen has offered to inject about $500 million into Sirius and restructure the roughly $375 million in short-term debt he holds in return for control of the company. Sirius rejected the offer.
The gamesmanship between Sirius and Mr. Ergen has escalated over the past week. Sirius had been trying to convert the $175 million debt tranche that matures Tuesday into more senior debt and equity with the previous holder of the notes, a hedge fund. Before it could secure a deal, however, Mr. Ergen swooped in last week and acquired the bonds.
It was a high-risk move because the notes in question are junior to about $600 million in bank loans and other debt Sirius has issued, and will likely be worthless if the company goes bankrupt.
This week, Sirius representatives responded to Mr. Ergen’s move by spreading word that the company was preparing to file for bankruptcy and had hired bankruptcy and restructuring advisers. Company officials also privately told investors that Sirius has entered a “zone of insolvency” and that a bankruptcy filing would be preferable to cutting a deal with Mr. Ergen, according to people who participated in the discussions.
And, of course, Mel rushed to see John Malone.