Sinclair Broadcast Group and its regional sports network arm Diamond Sports Group dipped into their revolving credit lines to the tune of nearly $900 million to give the company added liquidity as uncertainty around the COVID-19 outbreak rages.
According to an 8-K statement filed with the Securities and Exchange Commission Monday (March 23), Sinclair said it drew about $648 million from its revolving credit facility and Diamond Sports Holdings, which includes the 20 regional sports networks it purchased from The Walt Disney Co. last year, as well as its 20% interest in YES Network, drew about $225 million from its revolver on March 17.
Those debt transactions were made as “precautionary measures to preserve Sinclair’s financial flexibility in light of the current uncertainty in the global economy resulting from the novel coronavirus pandemic (“COVID-19”),” the company said in the filing. Proceeds, if needed, would be used for working capital and general corporate purposes. After the transactions were completed, Sinclair Broadcast Group had about $600,000 remaining on that revolver, while Diamond had about $425 million available on its line of credit, according to the filing.
Sinclair shares were up 13% ($2 each) to $17 in morning trading Tuesday.
In a research note, Fitch Ratings director Patrice Cucinello wrote that the drawdowns were a precautionary move, adding that Diamond Sports already faces pressure from Dish Network’s decision to drop the RSNs last year. As a result, Sinclair reduced its fiscal year 2020 sports segment cash flow guidance to between $939 million and $974 million, below the $1.5 billion it generated in fiscal 2018 and $1.3 billion in fiscal 2019.
Cucinello added that Fitch expects Diamond’s total leverage to rise to about 8 times cash flow based on those revised estimates and its roughly $8.175 billion in total leverage. She noted that Diamond has a separate debt structure than Sinclair.
The lack of sports content because of the coronavirus continues to put pressure on regional sports networks, and Cucinello added that it could affect upcoming carriage negotiations for Diamond Sports.
“Arguably, the Coronavirus is a temporary overhang to the RSN sports programming,” Cucinello wrote. “However, the real risk is that this further pressure Sinclair’s negotiating leverage with distributors. Sinclair continues to negotiate with Dish to renew carriage. With no sports programming, the potential for renewed carriage is diminished and even if Sinclair does manage to get Dish back it’s likely at a substantial re-rate. Also, upcoming carriage negotiations could be more challenged. The next one is with Comcast (mid 2020). Sinclair has renewed 75% of its RSN subscribers onto new long-term distribution agreements.”