Diamond Sports details events leading to bankruptcy filing, seeks cash collateral use

By Sarah Lizee

Olympia, Wash., March 15 – Diamond Sports Group, LLC detailed the events leading up to its Chapter 11 filing in a declaration filed Wednesday with the U.S. Bankruptcy Court for the Southern District of Texas.

The local sports programming provider said its business is in a transition that is facing three key challenges, one of which is its significant debt load.

In August 2019, Diamond’s business was acquired by Sinclair Broadcast Group, Inc. from Disney for about $10.6 billion, including the incurrence by Diamond of about $8.2 billion of debt, consisting of $3.3 billion in secured term loans, $3.1 billion of secured notes and $1.8 billion of unsecured notes.

This debt would require Diamond to pay about $650 million in debt service this year, a substantial drain on cash.

The company also cited negative impacts to revenue associated with cord-cutting and continually increasing sports rights payments, and the need to secure streaming and expanded digital rights for its direct-to-consumer product to broaden distribution reach and ensure the company has flexibility to market and distribute its product.

Throughout 2021, Diamond engaged in discussions with some holders of its funded debt for a significant capital infusion to continue developing its direct-to-consumer business. Some creditors agreed to provide the company with $635 million in new money financing in March 2022. The company’s board of managers was revamped at this time, and a majority of independent managers was appointed.

Despite raising the capital and making strides in developing its direct-to-consumer offerings, it became clear toward the end of 2022 that Diamond’s capital structure was no longer sustainable.

The company said its expensive capital structure limited its ability to obtain additional rights needed to provide a more integrated product to consumers from its league and team partners, given their concerns about Diamond’s viability.

After evaluating all options, Diamond concluded that using the Chapter 11 protection and process is the best available path forward.

As previously reported, the company has reached an agreement with majorities of its second-lien and unsecured lenders on the key terms of a balance sheet deleveraging, including equitizing more than $8 billion of its prepetition debt.

The commitments are part of a restructuring support agreement signed by 34% of first-lien lenders, 69% of second-lien lenders and 57% of unsecured noteholders.

Diamond’s first-lien lenders will be unimpaired, while Diamond’s other secured and unsecured creditors will equitize their debt in exchange for equity and warrants issued by reorganized Diamond.

In connection with the deleveraging, Diamond plans to separate its business from Sinclair and become a stand-alone company. The debtor, Sinclair and consenting creditors are working on the proposed terms.

A majority of the company’s first-lien lenders have agreed to Diamond’s consensual use of cash collateral during the Chapter 11 cases. The company has filed a motion seeking court approval to access the funds.

At this time, the company doesn’t expect having to seek debtor-in-possession financing. The company has about $425 million of cash on hand to fund its business and the restructuring.

The RSA sets out a timeline for the Chapter 11 process, including setting a Dec. 1, 2023 confirmation hearing, and the plan going effective by Dec. 31, 2023.

Paul, Weiss, Rifkind, Wharton & Garrison LLP and Wilmer Cutler Pickering Hale and Dorr LLP are serving as the company’s proposed legal counsel, and AlixPartners, LLP is serving as the company’s proposed restructuring adviser. LionTree Advisors LLC and Moelis & Co. LLC are serving as the company’s investment bankers, and Reevemark is serving as communications adviser to the company.

Diamond Sports Group is an independently managed and unconsolidated subsidiary of Sinclair Broadcast Group. Diamond owns the Bally Sports Regional Sports networks, a provider of local sports. The Baltimore-based company filed Chapter 11 bankruptcy on March 14 under case number 23-90116.

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