Sinclair Broadcast Group’s regional sports unit is reportedly trying to restructure $8 billion in debt, underscoring the pressure on the business after a season in which the coronavirus canceled games and viewers are cutting the cable cord.
Sinclair bought a 90% interest in 21 Fox regional sports networks for $9.6 billion through Diamond Sports Group from the Walt Disney Co. in August 2019. Disney, which owns ESPN, acquired the networks when it bought 21st Century Fox, but had to sell them to satisfy antitrust regulators.
According to The Wall Street Journal, bondholders have hired lawyers and financial advisors to deal with Sinclair’s bankers.
Wells Fargo analyst Steven Cahall noted that Diamond Sports’ $3 billion in senior bonds are trading at 66 accents on the dollar and $1.8 billion in junior bonds traded at 50 cents.
Cahall said that the way Sinclair structured the RSN purchase via Diamond Sports protects the broadcaster, which is on the hook for just $175 million in preferred equity. That means the debt situation should have limited impact on Sinclair stock, helping its negotiating position.
Bondholders might want to try to find someone to run the RSNs other than Sinclair, which collects fees from the RSNs of about about $100 million a year, according to the analyst.
Sinclair’s decision to buy the RSNs has been second guessed and Cahall said he’d like to see the broadcaster get out of the business.
“It’s a distraction for investors, an asset in decline and a potential drain on retrans to support RSN carriage fees,” Cahall said. “Ultimately we view a separation of the RSNs as the best case scenario for Sinclair as it removes a big overhang that’s needed management’s attention since the get go.”
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