Liberty Media Corporation, the parent company of DirectTV, has made it easier for Sirius XM satellite radio to stay alive.  Liberty Media has taken a 40% stake in the satellite radio company in exchange for $530 million.  Sirius XM was forced to pay $172 million today to creditors in the form of convertible notes.  Later this year, the company will owe another $750 million in loans.  Therefore the deal with Liberty Media is just a temporary solution.

Liberty will be loaning Sirius XM $280 million with a 15% interest rate.  Sirius will have to pay back Liberty Media the money by December 2012.  Another part of the deal is a $150 million loan to XM radio for help in paying back Echostar, a satellite TV company.  Echostar had expressed interest in acquiring Sirius XM at one point as well.  Liberty also pledged to loan another $100 million to help pay for Sirius XM’s existing loans.

Once all of the loans are made, Liberty Media will get 12.5 million preferred stock shares in the satellite radio company.  Liberty will also have 40% of the seats on Sirius XM’s board of directors.

“We are pleased to have come to this agreement with Liberty Media, particularly in light of today’s challenging credit markets,” stated Sirius XM CEO Mel Karmazin. “Liberty’s investment is an important validation of what Sirius XM has already achieved and a vote of confidence in what we will achieve.  This agreement enables Sirius XM to continue to develop the opportunities first outlined in the merger of Sirius and XM. By strengthening our capital structure and enhancing our financial flexibility, this investment allows us to continue providing the great content and innovative programming our subscribers know and love.”

The stock for Sirius XM Radio Inc. (NASDAQ:SIRI) has plummeted to below 2 cents per share.  About a year ago, the company stock was hanging on to about $3.19 per share and dropped rapidly.  Mel Karmazin the current CEO of the combined satellite companies said he was planning on cutting costs for Americans to acess the service for $0.43 per day. “Forty-three cents a day — it’s not even vending machine coffee,”stated Karmazin at the time.

Sirius is now hiring advisers in preparation for a possible bankruptcy according to sources at the NYT.  This is bad news for celebrities who currently depend on Sirius XM to broadcast content such as Eminem’s Shade45 and Howard Stern.  A bankruptcy may cause Sirius XM to cancel contracts with celebrities.

If Sirius goes bankrupt, it would be the second largest Chapter 11 of the year.  The company has $5 billion in assets including the satellite technologies.  That is shortly behind Smurfit-Stone, a company with $7 billion in assets.  Sirius XM has never seen a profit even when both companies were independent of each other.  Now they have $3.25 billion in debt.

The automotive industry taking a hit has a direct correlation with Sirius’ failure.  Many of the new cars on the market are Sirius XM-ready.  If consumers aren’t buying them, they won’t have access to the satellite radio unless buying the peripheral device.

“Sirius XM hired Joseph A. Bondi of Alvarez & Marsal and Mark J. Thompson, a bankruptcy lawyer with Simpson, Thacher & Bartlett, to help prepare a Chapter 11 filing,” stated the NYT.  “Documents and analysis are close to completion and a filing could come in days.”

EchoStar, a TV company may end up pushing the takeover Sirius as they already have bought some of the satellite radio company’s debt at $400 million worth.  Once Pulse 2.0 finds out more, we’ll report it in the coming weeks.

For more information, check out the discussion on Techmeme.