Liberty Media Liberating SIRIUS XM... Sort Of (SIRI, LINTA, LCAPA)

Sirius XM Radio Inc. (NASDAQ: SIRI)  nearly doubled this morning after John Malone’s Liberty Media Corp. (NASDAQ: LINTA) (NASDAQ: LCAPA) said it was coming to the rescue.  If you look through the terms, this really isn’t “all good news”… but it beats the alternative.  Sirius will be able to repay its February 17 maturity, will be taking on debt and issuing preferred stock to Liberty.

The first phase includes a $280 million senior secured loan from Liberty.  It says that $250 million will be funded today to repay $171.6 million of its maturing 2 1/2% convertible notes due today and the balance will be used for general corporate purposes.  It isn’t exactly cheap money as the loan will be at 15% and matures in December 2012.

The second phase of the investment provides an additional loan of $150 million.  This is to the XM Satellite Radio unit.  Liberty has also agreed to offer to purchase up to $100 million of the loans outstanding under XM Satellite Radio’s existing credit facilities from the lenders.  Upon the completion of the second phase, SIRIUS XM will issue Liberty 12.5 million shares of preferred stock convertible into 40% of the common stock of SIRIUS XM.

Liberty will receive seats on the SIRIUS XM Board of Directors proportionate to its equity ownership and it is expected that John Malone and Greg Maffei will take those board seats.

What is interesting is that this appears to save Mel Karmazin’s role as CEO.  The good news here is if you are a shareholder of Sirius common stock, you are “only” diluted by about 40%.  Most believed you were going to be wiped out entirely.

Jon C. Ogg
February 17, 2009