EchoStar may be Sirius' best bet as debt comes due

By Franklin Paul and Yinka Adegoke - Analysis

NEW YORK (Reuters) - With heavy debt payments just round the corner, Sirius XM Radio Inc Chief Executive Mel Karmazin is under increasing pressure to strike a deal with Charlie Ergen's EchoStar Corp to avoid bankruptcy.

Wall Street analysts say a deal with Ergen is emerging as the most likely and preferable scenario for the satellite radio provider, whose main growth engine -- sales of new cars with Sirius radios -- has been hit badly by the recession.

Ergen, the majority owner of satellite television company EchoStar and its sister company Dish Network Corp, holds $175 million in Sirius convertible notes that mature next week and holds another $400 million of debt due in December, media reports say.

This means Karmazin has to work with Ergen or find some other source of cash, which is unlikely in these markets.

"Given Sirius' lack of alternatives, talking to Charlie Ergen would be advisable," said Stanford Group analyst Frederick Moran.

"From a strategic standpoint, if Dish can gain control of Sirius for pennies on the dollar, it could be of strategic benefit long term," Moran said.

At the other extreme, Sirius could file for bankruptcy protection -- it has already engaged law firm Simpson, Thacher & Bartlett LLP as bankruptcy counsel and restructuring firm Alvarez & Marsal, according to the New York Times.

But that could open up Karmazin to the risk of shareholder lawsuits, particularly if Ergen had made a bid for the company. The Wall Street Journal reported that Ergen offered late last year to restructure Sirius' debt and inject several hundred million dollars of capital in return for control.