Sirius XM Up to Its Ears in Debt

Although both Sirius and XM functioned historically with negative cash flow, a combined Sirius XM will certainly not have enough money on hand to manage its debt until it has a positive cash flow.

"Standard & Poor's believes that the company's access to the debt markets will be predicated on the financial markets' stability and the company's growth and execution," writes Hal Diamond, credit analyst with S&P RatingsDirect, in a research note. "Ongoing substantial liquid resources are critical because access to the public debt and equity markets is unpredictable."

During a tech conference last week, Karmazin reassured investors that Sirius XM would eventually be free cash flow positive, but he also went as far as to announce he has been in talks with several lenders in hopes of securing a refinancing deal for all of that debt.

Since then though, the financial landscape has been dramatically altered. Lehman Brothers (LEH Quote) filed for Chapter 11 bankruptcy protection Monday after both the U.S. government and the private sector refused to bail out the investment bank.

On top of that, Merrill Lynch (MER Quote) was forced to sell itself to Bank of America (BAC Quote).

The last two true U.S. investment banks, Goldman Sachs (GS Quote) and Morgan Stanley (MS Quote), will likely scrutinize any lending or underwriting from here on out, and even foreign banks like Credit Suisse (CS Quote), Deutsche Bank (DB Quote) and UBS (UBS Quote) will likely find it hard to lend a helping hand to Sirius XM.

Needless to say, it may prove to be extremely difficult for Sirius XM to secure $1.05 billion to get these repayments financed. Combine a credit rating of CCC+, or junk status, with its situation classified as "developing" by Standard & Poor's, and it becomes more and more unlikely Sirius XM will function the way many expected it to post-merger.