* Liberty to lend $530 mln to Sirius XM for 40 pct stake
* Liberty's John Malone, Greg Maffei to join Sirius board
* Maffei says investment is more financial than strategic
* Sirius, DirecTV may partner on mobile video, marketing
* Sirius shares rise 52 pct, bonds jump
(Adds analyst comment, Maffei interview, loan details,
By Franklin Paul and Yinka Adegoke
NEW YORK, Feb 17 Mel Karmazin's Sirius XM Radio
Inc (SIRI.O) won a reprieve from its debt deadlines on Tuesday
after Liberty Media Corp LINTA.O agreed to lend $530 million
to help the satellite radio provider fend off bankruptcy.
In return, Liberty LCAPA.O, controlled by cable mogul
John Malone, stands to take a controlling 40 percent equity
stake in Sirius XM, the second largest U.S. subscription
service after cable company Comcast Corp (CMCSA.O).
The deal comes after days of talks between the two
companies as pressure mounted on Karmazin to raise funds to
address some $1 billion in debt due this year.
Karmazin said in a statement that he was pleased with the
agreement, "particularly in light of today's challenging credit
markets," and that it would enhance Sirius XM's capital
structure and financial flexibility.
Analysts said the deal was the best option for Sirius
shareholders, who would have been shut out had it filed for
bankruptcy. Still, its hefty debt obligation remains: Sirius'
total debt is about $3.25 billion, and a portion of Liberty's
loan alone will bear interest of 15 percent.
"Their credit situation continues to be very tenuous," said
Tuna Amobi, equity analyst at Standard and Poor's. "They live
to fight another day. The only concern is that the day is not
too distant. They may get through (a debt payment in) May but
December may prove critical if credit market doesn't improve."
The deal also helps Sirius Chief Executive Karmazin stave
off a potential takeover bid by EchoStar Corp (SATS.O), whose
CEO Charles Ergen also runs Dish Network, a rival to Liberty
affiliate DirecTV Group Inc DTV.O, the largest U.S. satellite
Ergen had purchased hundreds of millions of dollars of
Sirius' debt, including $171.6 million in convertibles maturing
Its books temporarily assuaged, Sirius must quickly address
critical operational questions, such as how it will sustain
growth as the automotive market founders and consumers, worried
about their jobs and retirement accounts, rethink discretionary
Moreover, the company must cut costs, analysts say.
"Sirius XM has been unsuccessful in renegotiating some
larger content contracts," Stanford Group analyst Frederick
Moran, wrote in a note to clients, referring to deals with
partners like Major League Baseball. "We believe Sirius XM must
devise a strategy to lower content costs to remain viable."
TRYING TO REFINANCE DEBT
Sirius has been trying to refinance debt since its
acquisition of rival satellite radio provider XM, which was
approved last July.
Under the agreement, Liberty LMDIA.O would first provide
a $280 million senior secured loan to Sirius XM, of which $250
million would be funded on Tuesday to help the satellite radio
company repay the $171.6 million in notes due today.
Then Liberty would provide another $150 million loan to XM,
Sirius XM's wholly owned subsidiary, and also purchase up to
$100 million of XM's credit facilities.
Once the loans are completed, Sirius XM would issue Liberty
12.5 million shares of preferred stock convertible into 40
percent of common stock. Liberty would also receive seats on
Sirius XM's board, and expects Malone and Liberty Chief
Executive Greg Maffei to join the board.
Maffei told Reuters that Sirius XM is an attractive bet
because it is a good company in unfortunate circumstances, with
nearly 20 million subscribers. While there were few obvious
technology or distribution synergies between Sirius and
DirecTV, the two might be able to cooperate in marketing and
mobile video partnerships, he said. [ID:nN17372113]
"We've structured a very attractive investment, with
security on the upside and on the downside," he said.
Analyst Thomas Eagan of Collins Stewart speculated that
Liberty views the deal in a different way from EchoStar, with
Ergen perhaps having eyed a broader strategic play in wireless
services and video in cars and on mobile devices.
"For John Malone, it's more of a financial investment,
especially with a 15 percent rate. He had this venture fund
with cash available and he figured this was a worthwhile
investment," Eagan said.
Sirius XM Radio's bonds jumped on Tuesday, with its 9.625
percent bond due 2013 rising 16 cents to 53 cents on the
dollar, according to MarketAxess.
Shares of Sirius doubled to 22.8 cents in early trading
before paring gains to close up 52 percent at 16 cents.
(Additional reporting by Tiffany Wu; Editing by Dave
Zimmerman, Richard Chang)