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Sirius XM: Bankruptcy Threat's Real

Ergen has reportedly offered to restructure Sirius XM's debt and inject several hundred million dollars into the company in return for control. Sirius XM was approached with the offer late in 2008 and declined, although the proposal is believed to remain on the table.

The Wall Street Journal noted Friday that the gap between what Ergen has offered and Sirius has asked for has narrowed, but the parties haven't reached agreement yet on other, nonfinancial issues. Ergen is prepared to let Karmazin retain his position, the newspaper reports.

Also on the table is a potential capital injection from billionaire John Malone and Liberty Media (LINTA). Reports surfaced earlier this week that Sirius XM and Liberty, which controls DirecTV (DTV), were in talks.

According to a Reuters report, discussions between Sirius XM and Liberty are "friendly" and do not include an equity stake, according to sources close to the matter. Any possible agreement could include a loan to Sirius XM, paying off its debt, or assuming the debt obligations.

Shares of Sirius XM were lately up 30% to 11 cents a share, although the stock is still down more than 95% since the July merger between Sirius and XM Satellite Radio. Investors appear to be holding out hope that a refinancing of the debt due on Feb. 17 will keep the company from filing for Chapter 11 bankruptcy protection.

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