Analyst Deems Sinclair Bankruptcy “Remote”

July 15, 2009

NEW YORK: Wachovia analyst Marci Ryvicker is skeptical at best over the warning flares Sinclair Broadcasting sent out regarding possible bankruptcy. The Hunt Valley, Md., broadcast group warned yesterday that it might not have the cash to cover debt maturing over the next 18 months.

“To be blunt, we think management is posturing,” Ryvicker wrote in an analyst note today. “We believe that management is painting the most dire scenario in a public forum as part of its negotiations with convert holders. There are still 10 months before these converts can be put to the company.”

The real issue, she said, is the condition of Cunningham Broadcasting, a local marketing agreement partner with Sinclair in six markets. Sinclair (NASDAQ: SBGI) said yesterday that Cunningham is on the brink of bankruptcy, having missed a June 5 loan payment. Cunningham contributes around $77 million to SBGI annually.

“Cunningham, majority owned 90 percent by members of the Smith family,” which also controls much of Sinclair, “currently has a $33.5 million term loan facility--guaranteed by SBGI--that was declared to be in default on June 5,” Ryvicker said.

Terms were extended to July 31, which is only two weeks away, and Sinclair’s bank credit facility has a cross-default provision that could be triggered by a Cunningham bankruptcy. Ryvicker estimated that a Cunningham bankruptcy puts around $26 million in cash flow at risk for Sinclair.

“To resolve this issue, management may be forced to renegotiate the LMA agreements with Cunningham; or it could receive a waiver of the cross-default provision from its lenders,” she wrote. “Management was silent on which route they plan to pursue.”

Sinclair’s discussions with holders of its debt due in the next 18 months continues.

“Management is taking a holistic view when it comes to resolving the issues related to Cunningham’s potential bankruptcy as well as the converts,” Ryvicker said. “We believe this is appropriate since the loss of $26 million in cash flow from Cunningham would make it nearly impossible to refinance the notes. Making this even more difficult is the fact that SBGI only has $70.5 million available under its revolving credit facility.

“We think the possibility of a potential SBGI bankruptcy is remote, but that headline risk remains significant.”

July 14, 2009: “Sinclair Positions for Bankruptcy
“At our current stock trading price levels, it is highly probable that the holders of these notes will exercise their put option,” the 8-K filing said. “If we are required to repurchase our… notes, we do not have the cash necessary to meet our repurchase obligations.”

June 19, 2009Standard & Poor’s Cuts Sinclair
“We believe that sluggish TV advertising in a nonelection, recession year will cause Sinclair’s EBITDA to decline further and leverage to continue to rise,” wrote Deborah Kinzer, an S&P credit analyst. “The negative rating outlook reflects our concerns about the company's deteriorating credit metrics and its ability to refinance potential upcoming puts.” 

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