Sirius Takes Investment From Liberty, Not EchoStar

Liberty Media (NSDQ: LINTA) has reached a deal to invest $530 million in Sirius XM, ending weeks of speculation over whether Liberty or EchoStar would emerge as Sirius’ white knight. The deal allows Sirius, which has been bogged down with debt problems, to avoid bankruptcy (at least for now). The investment will come in the form of loans and preferred stock convertible into 40 percent of Sirius common stock.

The deal calls for investments in two phases:

— First, a $280 million senior secured loan with a 15 percent interest rate will be issued to Sirius today. Of that, $171.6 million will be used by Sirius to repay a loan to EchoStar (NSDQ: SATS). The remaining funds will be used for everyday operations.

— Second, a $150 million loan will be given to Sirius through its wholly owned XM subsidiary; Sirius will get an additional $100 million loan to re-pay debt outstanding from its existing credit facility.

Sirius shares will likely jump on the news. Malone makes the investment without gaining control of Sirius (though he does get seats on the board), underscoring his confidence in satellite radio as a standalone business.

Sirius was forced to do the deal with Liberty because it had nearly $200 million in debt due today that it could not repay and an additional $400 million due in December of this year. The investment from John Malone’s Liberty (pictured) enables the company to re-pay the debt due today and provides it with cash to put toward the debt due in December.

Speculation has been swirling the past couple of weeks about whether Sirius would be forced into bankruptcy or find a last-minute investor to provide it with some cash and breathing room to deal with its debt issues. Charlie Ergen, who controls Echostar, first emerged as the most likely investor, having bought Sirius debt in recent weeks; he simultaneously was trying to come to a separate deal that involved a cash investment in Sirius (NSDQ: SIRI). But late last week Malone came into the picture. Though many people (including us) posited that Malone’s involvement was probably a ploy by Sirius CEO Mel Karmazin to gain negotiating leverage with Ergen, the talks were obviously real.