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Sirius Satellite Lives On

Struggling satellite radio company Sirius Satellite Radio has a new lease on life after it raised $200 million and reduced its debt.

The New York-based company struck an agreement with bondholders to convert about $700 million of debt and all of its $525 million of preferred stock into common stock. The arrangement makes the company's creditors the largest stakeholders in the venture.

Shares of Sirius rose 48 cents, close to 60 percent, to close at $1.32 after the deal was announced.

Sirius said the additional $200 million it raised, combined with about $240 million in cash on hand, is enough to help it operate into the second quarter of 2004, based on its current business plan. Furthermore, the company said it would look for more ways, including more cost cuts, to help it hit cash flow breakeven without raising additional funds.

In August, Sirius said it may have to seek bankruptcy protection or a sale of the company if it didn't get $300 million in operating capital by early 2003. On Thursday, investors stepped in and ponied up.

Oppenheimer global funds led the cash infusion with a $150 million stake. Affiliates of Apollo Management, L.P. and The Blackstone Group L.P. each added $25 million. The investment groups said after the deal is closed, they would exchange all of their existing convertible preferred stock for shares of common stock and warrants to purchase common stock.

The company's future was starting to appear iffy, only months after its national launch, after it skipped an interim interest payment of $720,000 last week, with an Oct. 31 payment deadline looming.

The latest cash infusion at least gives the company some breathing room from some debt payments as it continues building out its service and signing up subscribers. Since it launched nationwide in July of this year, Sirius has signed up an estimated 14,000 subscribers. It said it needs to reach two million subscribers by 2005 in order to hit break-even, though analysts cite three million as the magic number for cash-flow break-even.

Both Sirius and its only other competitor in the category, XM Satellite Radio Holdings , have raised billions in debt to help get their service launched. The Washington, D.C.-based XM has a subscriber count well ahead of Sirius Satellite's at 201,500 paying customers as of Oct. 1. But both are struggling to make debt payments and hold down their monthly cash burn of well over $100 million.

But by agreeing to convert Sirius debt to equity, the company's investors are essentially raising antes on their bet that the market for paid, go-anywhere satellite radio is viable.