Sirius XM Up to Its Ears in Debt

"We could lower the ratings if sizable 2009 maturities are not addressed and if the company cannot progress rapidly toward consistent positive discretionary cash flow," warns S&P's Diamond. "Until Sirius can generate positive discretionary cash flow, liquidity will rely on its liquid asset balances and access to the capital markets."

It's certainly not a shock that Sirius XM would eventually find itself in this position, considering the large amount of attention focused on its outstanding debt since before the merger.

As a standalone company, XM considered itself to be fully funded, but in May it disclosed that it will access a $150 million credit facility provided by General Motors (GM Quote). That credit facility matures at the end of 2009 and can be used only for payments to GM. The company started utilizing the GM credit facility in June, a month before its merger with Sirius.

While Sirius XM could continue to tap the GM credit facilities into next year, the inability to find additional liquidity remains a long-term issue.

"We have certain concerns about Sirius XM's cash balance in 2009 in light of the GM debt facility going away, along with Sirius XM's satellite capital expenditure commitments of $120 million, and the refinancing of another $1.05 billion of debt," said April Horace, analyst with Janco Partners, in a research note. "In light of the credit markets, refinancing the debt could be difficult or unachievable."

And while Karmazin has promised that Sirius XM would be free cash flow positive sometime in the future, the costs keep mounting for the company. In addition to debt obligations, Sirius XM is hoping to launch a new satellite in the second quarter of 2009 and another in the fourth quarter of 2010, which will likely push Sirius XM's cash position much lower.