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Sinclair Positions for Bankruptcy

HUNT VALLEY, MD.: Sinclair Broadcasting group may have to file for bankruptcy if it can’t renegotiate the terms of some of its debt. In a filing with the Securities and Exchange Commission dated July 10, the company said it had $488.5 million due over the next 18 months.

“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.”

As of March 31, the company had more than $1.3 billion in debt and $11 million in cash. First-quarter loss was $85.7 million compared to a profit of $15 million a year earlier.

Sinclair said that on July 8, the company and its advisors met with some of the holders of those notes--3 and 4.875 percent convertible senior notes due May 2010 and January 2011, respectively. Refinancing was discussed, but Sinclair (NASDAQ: SBGI) said that no agreement was reached at the meeting.

Sinclair cited a number of factors contributing to the economic pressures that could drive it into Chapter 11. Like TV stations across the country, Sinclair’s 58 call-letter stations are suffering from the end of the auto industry as the world knows it. Auto ad revenues traditionally made up about one-fourth of Sinclair’s total take from advertising. During the first quarter of this year, auto ads comprised 13.7 percent of net time sales, and 18.3 percent for all of 2008.

Another risk involves Sinclair’s relationship with Cunningham Broadcasting Corp., a local marketing agreement partner with Sinclair. The two share LMAs in six markets, providing SBGI with around $77 million annually. Cunningham defaulted on a loan June 5, and though terms were eventually extended to July 31, bankruptcy remains a possibility for that company.

Moody’s and Standard & Poor’s responded to Sinclair’s news by cutting the company’s credit rating, making it even more difficult for SBGI to borrow. Moody’s cut SBGI down two steps to Caa2, a highly speculative rating; while S&P also dropped it two steps to a B-, one level above highly speculative.

Sinclair owns and operates, programs or provides sales services to 58 TV stations in 35 markets, reaching 22 percent of U.S. television households. Shares of the company were trading at 1:30 Eastern at around $1.15, compared to around $1.50 for most of Monday.
-- Deborah D. McAdams