Crisis at Sirius XM Satellite Radio

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NEW YORK CITY - After sticking with Sirius XM (SIRI) through ups and downs, and downs, and more downs, shareholders are finally ditching the company in droves.

The stock fell by more than half Wednesday to just 6 cents a share, and there's a good reason why: The company has two options at this point, and both leave shareholders with nothing.

Customers, at least, shouldn't see interruptions in service. But prices could go up. And big names like Howard Stern could disappear as the company overhauls its contracts.

Sirius XM's biggest problem is $3.25 billion in debt that the company can't manage, particularly in this tight credit market. About $175 million is due this month -- part of $1 billion total due in 2009 -- and Sirius probably won't be able to pay.

The second problem is named Charlie Ergen. He's the boss at satellite TV company EchoStar (SATS), which has been stealthily buying up Sirius' debt (about $400 million at this point, plus the $175 million due this month). That debt gives him a lot of power, and he wants to take over the company.

So here's where shareholders get screwed. The company is considering a bankruptcy filing, in which case shareholders get nothing.

Then there's Option No. 2: Ergen's proposal to inject several hundred million dollars into the company and restructure its debt in return for control. Sounds great, except for one thing: he won't buy out existing shareholders. That likely means Ergen will swap his debt for equity, diluting shares down to nothing.

So what does all this mean for customers? Radio service will probably continue. The bad news is that a bankruptcy allows the company to hit the reset button in several areas. It might raise prices, even after promising that it would not.

And the company could get out of expensive contracts, most notably its deal with Howard Stern. The shock jock has already talked about leaving when his contract ends next year. But losing Stern would be disastrous, since he brought a legion of loyal fans into satellite radio.

So yeah, Sirius XM will limp along, and it still has the potential to be an amazing, profitable business one day. That's the reason shareholders have stuck it out for so long.

But loyalty doesn't get rewarded in this case. Sirius XM is about to make some hard decisions, and there will be sacrifices along the way.