Sinclair facing bankruptcy if convertibles' put options unaddressed

By Angela McDaniels

Tacoma, Wash., July 10 - Sinclair Broadcast Group, Inc. has begun planning for a potential restructuring, including a possible bankruptcy filing, because it may be unable to address the upcoming put options for its convertible notes, according to an 8-K filing with the Securities and Exchange Commission.

The $294.3 million outstanding principal amount of 3% convertible senior notes due 2027 and $143.5 million outstanding principal amount of 4.875% convertibles senior notes due 2012 are putable in May 2010 and January 2011, respectively.

The company said it does not have enough cash to repurchase the convertibles if they are put, which Sinclair considers highly probable considering its current stock prices, and it is experiencing difficulty in raising new funds.

The company has been unable to sell its non-television investments due to a lack of buyers with access to credit and said the overhang of the puts on the convertibles and recent rating downgrades make its ability to raise new money at reasonable rates "even less attainable."

'No signs of recovery'

The company met with some of the noteholders on Wednesday to discuss a restructuring proposal. No agreement was reached, but Sinclair said it will continue to discuss solutions with the noteholders or their advisers.

The noteholders entered into a confidentiality and standstill agreement set to expire Friday. They were given material, non-public information, which the company disclosed in the 8-K filing on Friday.

The company said its business is showing "no signs of recovery" and that it expects a slow advertising recovery beginning only in the second half of 2010.

Any restructuring of the convertible notes needs to address a potential refinancing and/or extension of the company's revolving loan facility due June 2011, and restructuring the convertibles at higher redemption prices would leave very little EBITDA cushion, the company said.

Sinclair estimates that its 2009 EBITDA will be $159.0 million.

In addition, Cunningham Broadcasting Corp., Sinclair's local management agreement partner in six markets, is facing a potential bankruptcy that would cause a default under Sinclair's bank credit agreement.

The potential bankruptcy of Cunningham may result in the rejection of Sinclair's local management agreements with the company. Sinclair said any rejection by Cunningham of these agreements would result in material loss of revenue, business cash flow and enterprise value.

Sinclair is a Hunt Valley, Md.-based television broadcaster.

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