Sirius XM

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Sometimes living to fight another day will suffice. The satellite radio company Sirius XM sealed a $530m rescue package from John Malone’s Liberty Media, saving it from a bankruptcy filing – or worse, a forced deal with another media mogul, in this case Charlie Ergen, who controls satellite broadcaster EchoStar. The price is, predictably, high. Sirius will pay 15 per cent on Liberty’s loans, with an initial $250m arriving to repay debt maturing on Tuesday.

Chief executive Mel Karmazin, faced with unappealing credit terms last September, chose to play a waiting game. He must now battle those unaccommodating markets for the rest of the year. First up is to negotiate an extension of at least one year on $350m of bank debt due in May. The quid pro quo for the lenders (UBS and JPMorgan) is Liberty will take on $100m of their exposure. A further $150m from Liberty should help Sirius deal with the remaining $260m in notes maturing in December, reduced by last week’s debt exchange.

So survival just now is assured. But Sirius’s niche, subscriber-based business model looks increasingly weak. In November the company lowered 2009’s subscriber forecasts to 20.6m on ailing auto sales. The car market has collapsed further and economic strains suggest the proportion opting to pay for Sirius’s service after carmakers’ promotional period will fall. Online music services and wireless technology also pose a long-term threat to satellite radio.

For these headaches, the Liberty deal has little succour. Technological incompatibility would limit cost savings in any tie-up with Liberty’s DirectTV. Liberty, which receives preferred stock convertible into 40 per cent of Sirius’ common equity, probably just saw a media asset going cheap. Their agreement not to seek control for three years gives Mr Karmazin the chance, at least, to deliver on Sirius’s supposed promise. That battle may prove as testing as the one just fought.

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