Sirius XM shares are — wait for it — higher!

February 17, 2009

Sirius XM shareholders have seen a lot of dark days — face it, we’re talking about a stock that dropped to 15 cents a share. But today isn’t one of them. At least so far.

Indeed, shares of the satellite radio company jumped 100 percent after Liberty Media Corp agreed to lend it $530 million, allowing Sirius XM and its leader, Mel Karmazin, to sidestep a debt crisis.

The deal comes after a breathless week during which Sirius XM came under threat from EchoStar Corp and its top man Charles Ergen, a longtime rival of Karmazin, and looked very close to bankruptcy.

Now, Liberty Media Corp and yet another media mogul, John Malone, have come to the rescue. Here’s the deal, according to Reuters:

Under the agreement, Liberty 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 $171.6 million in convertible notes maturing today.

Then Liberty would provide another $150 million loan to XM Satellite Radio, 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.

While the markets are sorting through what all this means, you may want to check out a piece that ran in the Wall Street Journal this morning. It takes an interesting look at how Karmazin got himself into this crazy spot in the first place…

Last summer, after the long-awaited merger of Sirius with rival XM was finally completed, Mr. Karmazin needed to refinance more than $1 billion in debt that the combined company needed to pay off in 2009. But the 65-year-old chairman decided to hold off. The refinancing terms available, he said during an interview in early September, were “ugly” and he was under “no pressure” to get it done immediately.

Not long after he made those remarks, credit markets froze, making refinancing even more challenging. As the economy faltered, so did Sirius XM’s prospects. The company lacked the means to pay off a $300 million bond that was coming due on Feb. 17, and had to resort to cutting deals one by one with investors, gradually taking the outstanding amount down to $175 million.

But the looming deadline provided an opportunity for Charles Ergen….

As of this morning, it looks like he may have wiggled out of Ergen’s grasp. The question is, how does this play out long term?

Keep an eye on:

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(Photo: Reuters)

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