Apollo-backed Sirius on the verge of bankruptcy

The only satellite radio provider in the US is struggling under a $3.2bn debt load. Apollo first invested in Sirius in 1998 and retains a 2.6% stake.

After the collapse of Linens ‘n Things into insolvency last year, Apollo Global Management has been watching another of its companies move slowly toward a potential bankruptcy filing.

This time it’s Sirius XM Radio, the only satellite radio provider in the US. Sirius this week hired a team of advisors ahead of a potential bankruptcy filing. The advisors include restructuring specialist and private equity firm Evercore Partners, law firm Simpson Thacher and restructuring advisor Alvarez & Marsal.

Apollo made an initial $135 million investment in Sirius in 1998 from its fourth fund, with the ability to buy up to $65 million more of preferred stock convertible to common stock at a price of $30 per share. The firm also helped the company recapitalise in 2003 by converting its preferred shares into common stock and injecting $25 million in cash.

Apollo retains a 2.6 percent ownership stake in the company, and Leon Black, who heads up the firm, sits on Sirius XM’s board of directors. In 2007, he was paid $107,311 in cash and stock as a Sirius director, according to documents filed with the Securities and Exchange Commission. The Blackstone Group also invested $200 million into the company, but the firm’s website lists the investment as realised.

Sirius is lumbering under a $3.25 billion debt load that it can’t sustain. Part of the debt, $175 million, comes due on 17 February.

The Wall Street Journal reported Thursday that Sirius is seeking a “white knight” investment from Liberty Media, which is controlled by billionaire John Malone and provides satellite television.

Apollo declined to comment for this article.

The firm bought a $201 million stake in Linens ‘n Things in 2006 and watched as plummeting sales and the companies massive debt load dragged the company into insolvency. Despite efforts to reorganise under the protection of Chapter 11, Linens was eventually forced into a fire sale last fall.

While the fate of Sirius hangs in the balance, another private equity firm, ABRY Partners, has seen its portfolio company Muzak, a provider of in-store music, fall into bankruptcy this week.

Muzak, with debts of $465 million and assets of $324.2 million, sought Chapter 11 protection in part because “virtually all of the [companies] funded debt [is] set to mature in the first quarter of 2009”, according to Dodd Haynes, Muzak's chief financial officer, in a bankruptcy filing.

ABRY acquired Muzak in 1998.