This story was written by Rory Maher.
Liberty Media (NSDQ: LINTA) has reached a deal to invest $530 million in Sirius XM (NSDQ: SIRI) Satellite Radio, ending weeks of speculation over whether Liberty or Echostar would emerge as Sirius' white knight. The deal allows Sirius, which has been bogged down with debt problems, to avoid bankruptcy (at least for now).
The investment will come in the form of loans and preferred stock convertible into 40% of Sirius common stock.
The deal calls for investments in two phases:
First, $280 million senior secured loan with a 15% interest rate will be issued to Sirius today. Of that, $171.6 million will be used by Sirius to repay a loan to Echostar (NSDQ: SATS). The remaining funds will be used for everyday operations.
Second, a $150 million loan will be given to Sirius through its wholly owned XM Satellite Radio subsidiary; Sirius will get an additional $100 million loan to re-pay debt outstanding from its existing credit facility.
Sirius shares will likely jump on the news. Malone makes the investment without gaining control of Sirius (though he does get seats on the board), underscoring his confidence in satellite radio as a standalone business.
More to come
Those SIRI shareholders who stuck to their guns and held onto the shares during the past two weeks of uncertainty surrounding the fate of Sirius will likely reap rewards from today's news since the SIRI share price reflected expectations of imminent bankruptcy, which has been avoided for the time being. Sirius was forced to do the deal with Liberty because it had nearly $200 million in debt due today that it could not repay and an additional $400 million due in December of this year. The investment from Malone's Liberty enables the company to re-pay the debt due today and provides it with cash to put toward the debt due in December. Speculation had been swirling in the past two weeks about whether Sirius would be forced into bankruptcy or find a last minute investor to provide it with some cash and breathing room to deal with its debt issues. Charlie Ergen first arose as the most likely investor, having bought Sirius debt in recent weeks while simultaneously trying to come to a separate deal that involved a cash investment in Sirius. But, late last week Malone emerged as a possible suitor through his satellite TV company Liberty Media. Though most speculated Malone's involvement was simply a ploy by Karmazin to gain negotiating leverage with Ergen, it appears the talks were serious and that Malone won in the end.
By Rory Maher