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Sirius Narrowly Avoids Bankruptcy

February 17, 2009

Liberty Media Corp. will invest $530 million in Sirius XM Radio Inc., after the satellite radio provider said it could file for bankruptcy as early as Tuesday if it could not successfully negotiate with its debt holders. 

Liberty, which owns DirecTV, and Sirius said the loan will go toward paying $171.6 million in debt that comes due for Sirius on Tuesday. The remainder will be used to pay other debts coming due in May and at the end of the year, and for general working capital to operate Sirius’ satellite radio business.

Liberty’s offer blocked a rival bid by Dish Network Corp. CEO Charlie Ergen, who holds much of the debt that had come due on Tuesday. Ergen had offered Sirius a restructuring of the loans and capital infusions in exchange for control of the company, whose 20 million subscribers listen to music, sports, and talk shows such as the Howard Stern show.

However, Sirius CEO Mel Karmazin rejected Ergen’s offer.

A news release issued by both companies said that the first phase of the investment includes a $280 million senior secured loan from Liberty to SIRIUS XM, $250 million of which will be funded on Tuesday. Sirius will use the proceeds of the loan to repay $171.6 million of its maturing 2.5 percent convertible notes that had been due today, with the rest to be used for general corporate purposes.

Liberty’s loan will bear interest at a rate of 15%, mature in December 2012, and be secured by the assets securing SIRIUS XM’s existing term credit agreement.

The second phase of Liberty’s investment provides an additional loan of $150 million, and Liberty also agreed to offer to purchase up to $100 million of the loans outstanding under Sirius XM’s existing credit facilities.

In return, Liberty will receive 12.5 million shares of preferred stock convertible into 40 percent of Sirius’ common shares, and two seats on Sirius’ board, which it expects will be filled by Chairman John Malone and President and CEO Greg Maffei.

“We are pleased to have come to this agreement with Liberty Media, particularly in light of today’s challenging credit markets. Liberty’s investment is an important validation of what SIRIUS XM has already achieved and a vote of confidence in what we will achieve,” said Mel Karmazin, CEO of SIRIUS XM Radio, in a statement.

“This agreement enables Sirius XM to continue to develop the opportunities first outlined in the merger of Sirius and XM. By strengthening our capital structure and enhancing our financial flexibility, this investment allows us to continue providing the great content and innovative programming our subscribers know and love.”

“We are excited to be investing in SIRIUS XM. We have been impressed with the company, its operations and management team,” said Greg Maffei, president and CEO of Liberty.

“SIRIUS XM’s ability to grow subscribers and revenue in a difficult financial and auto market is indicative of how listeners view this as a “must have” service,” he said.

Sirius shares closed up 6 cents, or 53 percent, at 16 cents on Tuesday.

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