Bill Payment Bites Into Sinclair Results

Sinclair Broadcast Group took a hit in its Q1 results to reduce its interest expense over the long run. The Cockeysville, Md., broadcaster reported a net loss of $2.4 million for the first quarter of 2007, compared to net income of $10 million in the same period a year ago.

The results included a prepayment of $15.7 million on 8.75 percent senior notes. Sinclair further moved to clean up its balance sheet with a $300 million offer of 3 percent convertible senior notes due 2027. The net proceeds will be used to partially retire 8 percent senior notes due 2012. Bear Stearns, which does business with Sinclair, estimated the refinance will save Sinclair around $16 million a year in interest costs. The equity firm also said it expected Sinclair to end the year leveraged at 5.4x, compared to 7x at the end of 2005.

Sinclair's net revenues beat the Street, up 1.5 percent over Q1 '06 to $150.2 million compared to the 1.6 percent decrease projected by Bear Stearns. EBITDA was up 21.2 percent to $54.7 million; Bear Stearns projected $46.5 million. The Wall Street firm subsequently upgraded Sinclair to a Buy rating with a target share price of $18. Shares were trading at more than $17 before news of the Q1 net loss on Wednesday, which pulled them down to about $15.25. By Thursday, however, they were inching back toward $16.

Sinclair's bottom line was also affected by results at MyNetworkTV, which posted a 14.3 percent decline in the first quarter, and accounts for 21 percent of the company's broadcast revenue. Management said it believed that MyNetworkTV had bottomed out, and that upcoming programming changes would improve its results.

Revenue from the Fox stations that account for 40 percent of Sinclair's broadcast income remained strong, with time sales up 8.5 percent for the quarter. ABC stations--accounting for 23 percent of broadcast dollars--turned in 9 percent less time sales than last year, when the network had the Super Bowl.

Sinclair executives noted that ad revenue fluctuations will be offset going forward by income generated through retransmission. President and CEO David Smith said Sinclair has 80 percent of its multichannel video providers under long-term retrans contracts expected to generate $8 million in Q2 and $59 million for the year--a full year increase of 132 percent over 2006.