Sirius: Malone to the rescue

(breakingviews.com) -- Sirius XM Radio has thrown itself on the mercy of John Malone.

The U.S. satellite radio firm seems to have avoided bankruptcy - and maintained control - thanks to a $530 million loan from the cable magnate. But with a tsunami of debt nearing maturity and not enough cash, its independence is probably illusory.

It is extraordinary that Sirius (SIRI) escaped the clutches of Charles Ergen's Echostar (SATS). That company had accumulated a majority of the $172 million of Sirius debt due this week, as well as a large chunk of debt due later this year, in an effort to the grab the cash-strapped radio company on the cheap.

It was hard to imagine anyone with sufficiently deep pockets and a sturdy enough stomach to provide sufficient capital to provide cash-burning Sirius enough capital to pay off that debt and see it through to profitability. Sirius' new loan, at least, sees off the immediate threat from Ergen.

Yet Sirius now finds itself relying on the kindness of Malone. It has more than $900 million of debt that needs to be refinanced this year. And it doesn't look likely to be able to generate sufficient cash flow to service its debt for several years - absent a rapid improvement in auto sales, through which it picks up most of its customers. The money Malone has provided helps, but Sirius will probably need more.

Unless credit market appetite for highly risky debt revives, Sirius is almost certainly going to have to go back to Malone. If so, he could extract even more onerous terms than the 15% interest rate and 40% equity stake that he will reap from the current deal.

It looks like Sirius' day of reckoning has been postponed rather than avoided.