Sirius XM Radio (NASDAQ:SIRI) received a stay of execution on Friday. Now CEO Mel Karmazin needs to execute if he wants to stay.

Liberty Media (NASDAQ:LINTA) (NASDAQ:LCAPA) completed the second and final phase of what will ultimately be $530 million in life support for the cash-strapped satellite radio operator.

It's mostly good news for Sirius XM shareholders -- $250 million of the $350 million in debt that Sirius XM had coming due in two months has now been reclassified to mature in May 2010, with Liberty assuming the remaining $100 million under the condition that it mature in May 2011. (The first $280 million loaned from Liberty was used mostly to pay off debt due in February.)

Liberty will kick in with the final $150 million of its infusion later this year, to help cover most of the roughly $226 million that is due in December. In a nutshell, a company that once had to pay back more than $1 billion in 2009 is now down to less than $100 million in maturities come December.

Hold your applause for the end, though. Sirius XM isn't entirely out of the woods just yet.

Ballooning tabs and the angry bartender
Life may seem easier for shareholders, who were staring at a high probability of being wiped out if Sirius XM filed for bankruptcy protection last month. However, just because something is better on a relative basis doesn't mean that it's bearable on an absolute basis.

The next few quarters won't be easy. In an SEC filing over the weekend, Sirius XM shed some more light on the makeover of its May debt.

  • The interest rates being paid will be stubbornly high, between prime plus 11% and LIBOR (with a 3% floor) plus 12%. So we're talking about 14% to 15% in interest.
  • The steep interest payments are in addition to the 2% restructuring fee that Sirius XM had to pay to rework the maturities in the first place.
  • The $250 million due in May 2010 will also require that Sirius XM pay down its principle in quarterly $25 million chunks starting next quarter. In sum, 29% of the $350 million is due in 2009, 50% in 2010, and 21% in 2011.

In other words, Sirius XM still has chunky interest and even amortization installments to pay along the way. Then you have programming costs, which certainly don't come cheap when you have the hungry mouths of the NFL, Major League Baseball, Oprah Winfrey, and Howard Stern to feed.

Winners and losers
Even satellite radio optimists will have to concede that the big winner here -- if Sirius XM pulls through -- will probably be Liberty Media. It beat out a rival bid from satellite specialist EchoStar (NASDAQ:SATS), but it was no seller's market. Most of the money from Liberty comes in the form of high-interest loans. Heck, $30 million of the first $280 million borrowed went to pay Liberty itself!

Liberty is also receiving preferred stock in the company that is convertible into a 40% stake of Sirius XM's common stock. That is massive dilution for an exercise that simply buys Sirius XM time, but not debt relief.

The real challenge for Sirius XM now is to earn this second chance. It is going to have to dramatically cut costs to cover the steep debt payments it is now on the hook for, or find a way to grow revenue.

Growing is easier said than done these days. Consumers are scaling back on entertainment subscription services, short of Netflix (NASDAQ:NFLX). Automakers are having a hard time moving new cars (with new satellite radio receivers) off of dealer showrooms.

8 days, and counting
We will have a lot more visibility once Sirius XM reports its quarterly results next week. The company is certainly not out of ideas to milk more revenue out of its user base. It has moved to increase monthly rates on additional subscriptions under the same account. It plans to charge for premium online streaming. It has been promoting a higher-priced plan that includes the best of both XM and Sirius for several months now.

None of the moves are easy sells at this point. Churn may spike as subscribers cancel additional accounts. Even without price increases, big brands like TiVo (NASDAQ:TIVO) are suffering defections. Charging for online radio seems absurd when others like Pandora, CBS' (NYSE:CBS), and Time Warner's (NYSE:TWX) AOL Music are free. Offering combo packages may be a hard sell at a time when Sirius XM is shaving programming costs by consolidating its commercial-free music channels across XM and Sirius.

This all makes the March 17 conference call Karmazin's most important selling job since arriving at Sirius XM. He managed to sell his creditors on the company, but it has come at a dear price. Now it's time to sell the shareholders, before they sell first.

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