As expected, Liberty Media Corp. came to Sirius XM's rescue Tuesday (Feb. 17) just in the nick of time. In a deal announced by both companies, Liberty agreed to invest an aggregate $530 million in the form of loans to Sirius XM in exchange for a 40 percent equity interest in the company.
The deal comes on the day Sirius XM's debt of $175 million was due and allows Sirius XM to avoid bankruptcy, which the satcaster warned would be coming if it could not service its debt.
Under the terms of the deal, Liberty's investments will come in two separate phases. Upon completion of the second phase of Liberty's investment, Liberty will receive seats on Sirius XM's board of directors in proportion to its equity ownership. Liberty's John Malone, chairman and Greg Maffei, president and CEO, are expected to sit on the board.
In the first phase, Liberty will load Sirius XM $280 million with $250 million funded today (Feb. 17). The proceeds of the loan will be used by Sirius XM to pay its debt due Feb. 17 and the balance used for general corporate purposes.
The second phase provides Sirius XM with an additional loan of $150 million. Liberty also agreed purchase $100 million of the loans outstanding under XM Satellite Radio's existing credit facilities from the lenders.
"We are excited to be investing in Sirius XM. We have been impressed with the company, its operations and management team," said Maffei. "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."
Mel Karmazin, CEO of Sirius XM must be breathing a sigh of relief. Leading up to the deal with Liberty, EchoStar's Charlie Ergen was buying up much of Sirius XM's debt. The deal with Liberty, which owns 50 percent of EchoStar competitor DirecTV, blocks Ergen's play for the company and makes it possible for Karmazin and his management team to remain in place.
"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. 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,” Karmazin said in a statement.
Liberty's investment will be made via its Liberty Capital group.
Sirius XM's troubles are far from over. The company still has about $1 billion of debt due this year and $3 billion debt in total due in the coming years.