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"They can't use bankruptcy at creditors's risk as a 'Hail Mary' pass to keep themselves in power."
——creditors’ group legal rep Edward Weisfelner
MOMENT OF TRUTH APPROACHING FOR KARMAZIN, SIRIUS XM
Company Weighs Three Options: Bankruptcy, Bailout Proposals From Ergen, Malone
A group of Sirius XM Radio creditors says it is prepared to seek the ouster of CEO Mel Karmazin and other senior executives if the company files for bankruptcy instead of cutting a deal with an investor that would allow it to remain solvent, the Wall Street Journal reported.

"Creditors will act quickly and definitively if they perceive that management is acting in their own interest and not in the best interest of the estate," Edward Weisfelner, a partner with Brown Rudnick LLP, the law firm representing the creditor group, told reporter Matthew Karnitschnig. "The board of directors should carefully consider the ramifications."

In response to the creditor threat, Sirius said in written statement: "The management of Sirius XM is continually working to ensure the best possible outcome for the enterprise." Sirius's board, which includes Karmazin, met over the weekend to figure out a course of action. A final decision is expected today. If Sirius does file, creditors could ask the bankruptcy judge to remove management and put the company under the stewardship of an independent trustee.

Some of the bondholders in the creditor group believe that Karmazin and his team jeopardized the company's liquidity by not immediately refinancing its debt in July after Sirus's merger with XM closed. At the time, at least two banks were prepared to refinance the company's debt but management decided to hold off in the hope that the market environment would improve. Just weeks later, the financial crisis hit, eradicating the window of opportunity.

The company has been in talks with both Dish Network and Echostar owner Charles Ergen and Liberty Media’s John Malone, who controls DirectTV, about a deal to resolve the crisis before Tuesday, when $175 million in debt comes due. Sirius XM’s total debt is in the neighborhood of $3.25 billion

Both parties have made offers that would allow Sirius XM to meet its immediate credit obligations in return for a significant stake or control. Ergen has offered to put about $500 million into the company. He would also restructure the roughly $400 million in Sirius debt he holds. Those holdings include the $175 million in notes that expire on Tuesday, giving Ergen considerable leverage in the talks.

Ergen and Karmazin are longtime adversaries, and Karmazin reportedly argued against accepting the billionaire’s offer because he feared he’d lose his job. More recently, Ergen has said he would allow Karmazin to stay on, although it's unclear whether the Sirius chief would be willing to work for Ergen.

So investors were understandably skeptical when Sirius XM recently theorized that bankruptcy, which would enable the company to restructure under current management, may be its preferred course.

"You have to be a little skeptical when you hear that from the same people who drove the bus into the wall," Weisfelner said in regard to that scenario. "They can't use bankruptcy at creditors's risk as a 'Hail Mary' pass to keep themselves in power."

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