Sirius Saved from the Brink of Bankruptcy

Sirius XM (SIRI) looked over the abyss, but lives to fight another day.

Teetering on the edge of bankruptcy, Sirius has been rescued by John Malone’s Liberty Media Corp. (LINTA). Sirius announced Tuesday morning that Liberty will invest $530 million in Sirius in the form of loans and in return will receive a 40% equity interest in the company.

Terms call for the investments to be made in two phases. In the first phase, Liberty will loan Sirius $280 million, including $250 million to be provided today. Proceeds will be used to repay $171.6 million of its maturing convertible notes due February 17. The rest will be for general corporate purposes, including transaction costs. The new loans will bear interest at 15%, mature in December 2012, and be secured by the company’s existing term credit agreement.

The second phase provides another $150 million loan to the company’s XM Satellite Radio unit. Liberty also agreed to buy up to $100 million of loans outstanding under XM’s existing credit facilities from its lenders.

After completion of the second phase, Sirius will issue to Liberty 12.5 million preferred shares convertible into a 40% stake in Sirius XM. Liberty will also get seats on the XM board proportionate to its ownership. The companies said Malone and Liberty CEO Greg Maffei are expected to join the Sirius board.

Sirius said the deals are not subject to FCC approval.

Liberty said its investment will be attributed to Liberty Capital (LCAPA) and will affect the planned split-off of Liberty Entertainment.

Sirius last week had warned that it might have to file Chapter 11 if it didn’t find a way to pay down the debt that comes due today. That debt had been held by Charlie Ergen, the CEO of Dish Network (DISH) and Echostar (SATS), who had been maneuvering to acquire Sirius. But Ergen appears to have been beaten out by Malone, who also controls DirecTV (DTV), chief rival of Dish Network in satellite TV broadcasting.

In pre-market trading Tuesday, SIRI was up 8.51 cents, or 81.1%, to 19 cents.