Spotlight on: Diamond Sports Group

Over nine years, the Reorg team has analyzed thousands of performing and distressed credits. Our expert team of financial analysts, legal analysts and journalists produce granular capital structures, primary analysis, tear sheets, waterfall models and more.

With long and deep connections to credible sources, we publish up-to-the minute news to help you stay ahead. In this case study, we’re highlighting one example showcasing the ongoing credit insights that Reorg’s team provide day in, day out to enhance efficiency and improve decision making for more than 25,000 investors, advisors and lawyers.

Diamond Sports Group LLC, or DSG, is a subsidiary of publicly-traded Sinclair Broadcast Group, Inc. The subsidiary, which represents a segregated credit silo within Sinclair, was formed in 2019 to acquire a portfolio of Fox Sports-branded regional sports networks, or RSNs.

Since the 2019 transaction announcement, amid cord-cutting trends and consumer price sensitivity trends, DISH Network, Hulu, YouTube TV and FuboTV ended their carriage partner relationships with DSG. Diamond’s midpoint 2022 adjusted EBITDA guidance of $282 million is down 78% from $1.271 billion of 2019 pro forma adjusted EBITDA.

On March 1, Diamond Sports executed a transaction that included a $635 million new money first lien superpriority term loan and the uptiering of $6.258 billion in formerly secured securities to a second-lien superpriority tier.

December 20, 2019 

Reorg initiated coverage of Diamond Sports, detailing DSG’s DISH carriage dispute and secular challenges.

October – November, 2020 

Reorg reported advisor mandates across the DSG capital structure:

• Term Lenders: Evercore as financial advisor, Gibson Dunn as legal advisor
• Unsecured Noteholders: PJT as financial advisor, Stroock as legal advisor
• Company: Moelis as financial advisor

March 22, 2021

Americas Covenants by Reorg detailed that, despite operating performance declines, Diamond’s debt documents provided significant transaction flexibility. The analysis noted DSG’s capacity to incur approximately $2.1 billion of first lien debt, incur at least $500 million structurally senior debt and transfer at least $1.4 billion of assets to unrestricted subsidiaries.

June 14, 2021

Citing increasing sports rights and other costs, Reorg forecasted a potential Diamond Sport liquidity shortfall as early as the first quarter of 2022 absent carriage agreement returns or additional sources of capital.

June 17, 2021

Reorg provided a Diamond Sports webinar spanning financial, covenant and legal restructuring matters relating to the situation.

June 22, 2021

In proposals consistent with Americas Covenants’ interpretation of Diamond’s vast priming flexibility under its debt documents, the company cleansed competing coercive financing proposals to secured lender and unsecured noteholder groups. Each proposal enhanced the priority position of the participating creditors while priming non-participating holders.

June 24, 2021

Patent research by Reorg revealed that Sinclair Television Group subsidiaries, which sit outside of the Diamond Sports credit silo, hold patents potentially supporting Diamond’s proposed direct-to-consumer, or DTC, offering. Reorg suggested that these patents might drive significant future intercompany economic considerations.

November 8, 2021

Sinclair enhanced Diamond’s liquidity by $150 million via the assumption and upsizing of DSG’s accounts receivable facility prior to the first-quarter trough liquidity period according to Reorg’s projections.

January 13, 2022

Diamond announced its plans to initiate a financing and coercive exchange transaction. A DSG transaction support agreement contemplated a $600 million new money first lien superpriority term loan and an uptiering exchange of its existing secured debt. The following day, Reorg provided a detailed analysis of the covenants and other considerations included in the transaction support agreement. Additionally, Reorg provided a downloadable excel-based exchange model modeling DSG’s pro forma capital structure under varying participation assumptions.

Six-year projections provided by the company in conjunction with the transaction support agreement revealed the incurrence of significantly higher management services fees upon the launch of Diamond’s DTC product, which is consistent with the DTC product’s likely reliance on intellectual property property outside of the Diamond credit silo, as predicted by Reorg.

January 18, 2022

Reorg highlighted that Diamond Sports’ Jan. 13 transaction proposal relies on the support of a thinly traded $31 million 12.75% secured notes issuance and suggested that holders could withhold transaction consents to potentially receive a make whole redemption. Prior to Reorg’s story, the issue was quoted in the low 50s. The notes’ prices surged 10 points intra-morning following Reorg’s report.

February 15, 2021

Subject to achieving the requisite consents of its Jan. 13 transaction, DSG announced the par plus make whole conditional redemption of its 12.75% secured notes, which represented an approximately 50 point bond price increase from when Reorg predicted such a possibility. Concurrently, Diamond increased its new money term loan size to $635 million from $600 million.

March 11, 2022

Following the March 1 liquidity-enhancing transaction completion, Reorg sensitized Diamond’s go-forward liquidity runway with a downloadable excel model. Modifying certain company model drivers, and assuming no further distributor departures, Reorg’s model suggests that in a low case Diamond would exhaust its liquidity in the first quarter of 2024 and in a mid case Diamond would exhaust its liquidity in the first quarter of 2025.

Reorg concludes that DSG’s newly independent board might enable it to execute a DTC strategy accelerating balance sheet right-sizing via a Chapter 11 bankruptcy filing.

Adam Rhodes Senior Distressed Debt Analyst arhodes@reorg.com