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Liberty Bails Out Sirius XM

But reprieve could be short-lived, with more debt ahead

Sirius XM has a temporary reprieve from bankruptcy thanks to a $530 million loan from Liberty Media, which now gets a 40% equity stake in the satellite radio company and becomes its single largest shareholder.

The deal from the company that owns DirecTV and the Discovery channel pays some of Sirius XM’s debts and may have saved the job of CEO Mel Karmazin, according to some analysts, who said creditors had warned that if the satcaster filed for Chapter 11 bankruptcy, they likely would have ousted Karmazin.

The loan comes with a high interest rate: 15%. Liberty Chairman John Malone and CEO Greg Maffei will take seats on the Sirius board. Liberty may get a third seat as well out of 12.

Liberty gave Sirius $250 million immediately, allowing the satcaster to pay off $175 million in debt that was due Tuesday to Dish Network Chairman Charlie Ergen; he also had sought a stake in Sirius and had been negotiating with the satcaster until a week ago.

While Ergen planned on using the wireless spectrum assets of Sirius to roll out new services like mobile TV, Maffei played down any benefits from combining radio and TV, telling the Wall Street Journal, “There are few operating synergies.”

Sirius hasn’t commented on why it decided the Liberty deal was better than Ergen’s.

Sirius XM is not out of the woods; it still faces another $350 million debt payment in May and $400 million debt payment in December. Sirius could use the extra money from Liberty to help make the May payment and use it own cash flow for the remainder.

However, Sirius and Liberty said the loan is structured in two phases, with Liberty’s obligation to provide the second loan subject to “certain closing conditions.” Those give Liberty the right to walk away before the second payment should Sirius’ financial conditions worsen, according to analysts.

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