Analyst Calls Sinclair Bankruptcy Threat “Posturing”

By Andrew Gauthier 

Mike Farrell, Multichannel News

Sinclair Broadcast Group, one of the more aggressive proponents of cash for retransmission consent from cable and satellite TV operators, has been dropping hints that it could be forced into bankruptcy if negotiations with convertible debt holders are not completed. But one analyst who follows the company suspects that the broadcaster may be “posturing” in order to get the convert deal done.

At the heart of the controversy is Cunningham Broadcasting, a six-station television group based in Baltimore that is 90% controlled by members of Sinclair CEO David Smith‘s family. On a conference call with analysts and investors Tuesday, Sinclair said that Cunningham is facing “significant financial challenges,” and if the station group were forced into bankruptcy it could indirectly impact Sinclair’s cash flow by between $24 million and $34 million.

Cunningham is an LMA (local marketing agreement) partner with Sinclair in six markets. In addition, Cunningham has a $33.5 million term loan (guaranteed by Sinclair) that was in default as of June 5. That default was waived on June 30 and the termination date was extended to July 31. Sinclair’s bank credit facility also includes some cross default provisions that could be triggered by a Cunningham bankruptcy, which according to Wells Fargo Securities analyst Marci Ryvicker, could force Sinclair to renegotiate the LMA agreements with Cunningham or to seek a waiver of the cross-default provisions from its lenders. Sinclair management has not revealed which path it will choose.

“To be blunt, we think management is posturing,” Ryvicker wrote. “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, so the real issue is what happens with Cunningham (which, by the way, is essentially owned by David Smith’s mom). We think the possibility of a potential SBGI bankruptcy is remote, but that headline risk remains significant.” More…