XM restructures debt approaching a sale to Sirius

But it comes at a cost.

Holders of about $600 million of senior notes with an interest rate of 9.75 percent will get at least $400 million in cash and $200 million in new debt. Some analysts were surprised by the size of the upfront cash payment.

Cowen and Co., which had projected in May a "worst-case scenario" cash outlay of $22.5 million, said in a research note Friday that the two satellite radio companies nonetheless have $625 million in cash on hand, a quarter of it through a revolving credit.

The new notes also will carry a higher yield or rate of return than the old debt--at least 13.92 percent a year, or 15 percent or higher annually if less than $150 million of new debt is issued. The old notes mature in 2014, the new debt in 2014, or 2013 under certain conditions.

"It's certainly expensive," said Joseph Bonner, an analyst with Argus Research in New York. "But getting any financing these days is expensive, the way the markets are."

In exchange, debt holders have agreed to waive their right for the notes to be repaid quickly once there's a change in control at the company. The waiver expires Aug. 31.

Refinancing XM's debt is a critical part of the $3.1 billion all-stock acquisition, which is awaiting its last regulatory approval, from the Federal Communications Commission. About $1.5 billion of debt has some variation of the change in control provision.

In July, XM restructured $400 million in senior convertible debt due next year. The company swapped an interest rate of 1.75 percent for 10 percent.

In return, noteholders agreed not to claim that the acquisition represents a "fundamental change" that would require XM to repay the debt within a set time after the acquisition.