Thu 08/31/2023 13:46 PM
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Michael McCaffery, CFA
Credit Research

Adam Rhodes, CFA
Credit Research

Wing Li
Credit Research

Relevant Items:
Sirius XM Satellite Initiation
Q2’23 Media Earnings Summary

Within the sector, we have recently launched coverage on Sirius XM Satellite and provided a detailed summary of key takeaways from the second-quarter 2023 media earnings summary.
Current State of Advertising

The Standard Media Index reported a major pickup in year-over-year advertising spending, although against a very favorable comparison.
Source: MediaPost
Television Broadcast Sector Updates

Ongoing Debate: Is Television Still Relevant?

Local television broadcast management teams have long touted the value that their local news coverage provides to the communities they serve. With the significant decline in local newspaper coverage, with approximately 2,500 estimated to have closed since 2005, local television broadcasters have sought to fill the void by increasing the number of hours of local news coverage. Several free ad-supported hyperlocal options are now available across broadcasters’ markets and a wide array of connected TV platforms and devices, including:
  • Hearst Television offers “Very Local” TV, and
  • Sinclair Broadcast Group offers “STIRR.”

Recently, Cox Media Group announced the launch of their hyperlocal streaming service “Neighborhood TV.”
Source: MediaPost

The value proposition for such hyperlocal news products is that they are designed to deliver highly specific news to specific “zones,” which Cox Media Group defines as areas with only a six-to-eight-mile radius, as opposed to the broader news content curated for the broadcast station’s designated market area, or DMA.

Update on Cord-Cutting

E.W. Scripps is addressing cord-cutting concerns through its embrace of accelerating consumers back to the traditional over-the-air, or OTA, method of consuming local television broadcast content through its relaunch of Tablo, a device that integrates with OTA antennas in order to provide free access to local stations within a DMA, more than 40 free ad-supported television, or FAST, channels, a built-in DVR, and an ability to link to several popular connected TV, or CTV, platforms for additional content options.

Political Advertising

BIA Advisory Services recently published an updated forecast, saying that it is now expecting local political ad spending of approximately $534 million for 2023. This figure is significantly ahead of the spending in 2021 and 2019, similar off-political years. Local political ad spending totaled $410 million in 2021 and $254 million in 2019. As shown below, local television is expected to garner a plurality of the 2023 political dollars.
Source: Inside Radio

However, this year will introduce a new advertising channel for political ad spending, as X (fka Twitter) will allow political advertising on the platform for the first time since 2019.

More Sports Coming Back to Broadcast TV

As we highlighted in our second-quarter Media Earnings Summary, Warner Brothers Discovery, or WBD, was working to exit its regional sports network, or RSN, branded as AT&T SportsNet. Recently, WBD announced the following in relation to its properties within AT&T SportsNet:
  • Pittsburgh Pirates (Major League Baseball, or MLB): Needs to determine its path forward at the end of the MLB season;
  • Pittsburgh Penguins (National Hockey League, or NHL): Sold rights to Fenway Sports Group (which also owns the Penguins franchise);
  • Colorado Rockies (MLB): Needs to determine its path forward at the end of the MLB season;
  • Houston Astros (MLB): In talks to sell rights back to MLB; and
  • Houston Rockets (National Basketball Association, or NBA): In talks to sell rights back to the NBA.

Thus, there remain opportunities for local television broadcasters to obtain full rights to four of the above franchises or potentially partner for partial rights.

Is the “Bundle” Coming Back?

AMC Networks announced that it would use its fellow streaming platform, WBD’s “Max,” as a promotional vehicle for its own “AMC+” streaming platform, providing key AMC content for a two-month period to Max subscribers starting in September. Perhaps this will be the first step toward the often-discussed speculation the sector needs to further consolidate.

Writers’ and Actors’ Strikes

The ongoing writers’ and actors’ strikes do not appear to be nearing a near-term resolution.
Radio Sector Updates

Despite Superior Reach, Large National Advertisers Have Been Tuning Out

The most recent Edison Research quarterly update, the second-quarter “Share of Ear,” reinforces the dominance of AM/FM radio in terms of time spent relative to other ad-supported audio options. However, based on the dismal third-quarter pacing information offered during the most recent radio earnings calls, advertisers remain unfazed.

However, advertisers appear to be paying closer attention to the significant increases in time spent listening to podcasts, prompting increases in either plans to begin advertising on podcasts or at least evaluate advertising on podcasts.
Source: Westwood One

Outdoor Advertising Sector Update

Given that the ongoing writers’ and actors’ strikes do not appear to be nearing a resolution, it is important to note the revenue exposures of both the entertainment vertical and the New York/Los Angeles markets for the outdoor credits:
  • Lamar Advertising: Minimal exposure as the company highlights the entertainment category broadly as only 4% of billboard revenue.
  • Outfront Media: Significant exposure as approximately 20% of the company’s revenue is derived from the entertainment category and New York City and Los Angeles are the two largest markets, combining for approximately 34% of total revenue.
  • Clear Channel Outdoor: Above-average exposure as approximately 21% of total U.S. revenue is from New York City and Los Angeles.
Movie Theater Sector Update

AMC Highlights Q2’23 Earnings

AMC Entertainment reported second-quarter 2023 revenue of $1.35 billion, up 16% year over year. This represents roughly 90% of second-quarter 2019 revenue. Attendance grew 12% year over year to 66.4 million, which represents 69% of 2019 levels. Adjusted EBITDA in the second quarter was $182.5 million, or 13.5% of revenue, compared with $106.7 million, or 9.1% of revenue, a year earlier.

On the company’s second-quarter earnings call, AMC CEO Adam Aron highlighted a robust second-quarter box office and a “roaring hot” start to the third quarter. He said that he believes the domestic box office will continue to show strength in the second half of 2023.

If AMC is able to raise liquidity, Aron said, the first use of cash would be for deferred maintenance on theaters after the company cut capital expenditure spending significantly during the pandemic. He said AMC would look to add new theaters to its network.

Aron noted that since the onset of the pandemic, the company has been able to bring select theaters into its network at the “attractive” prices of 3x to 4x EBITDA. He added that AMC would evaluate M&A opportunities including buying theater chains only if possible “at bargain basement prices,” or more creative M&A options if AMC is able to raise “lots of cash.”

Free cash flow in the second quarter was negative $62 million, based on negative $13.4 million of cash flow from operations and $48.6 million of capex. As of June 30, AMC reported liquidity of $643 million, comprising $435 million of unrestricted cash and $208 million of revolver availability.

AMC CFO Sean Goodman said that the Delaware Court of Chancery is reviewing its proposed settlement in its stockholder litigation related to the pending AMC preferred equity units’, or APEs’, conversion and reverse stock split.

Shareholder Litigation

Vice Chancellor Morgan Zurn of the Chancery Court on Aug. 11 released a memorandum opinion approving the revised settlement in the AMC Entertainment Holdings stockholder litigation, a step toward the company converting its APEs into common stock. The court also denied a pre-emptive request from AMC shareholder and settlement objector Rose Izzo for a stay preventing the conversion while Izzo pursues an appeal of the settlement’s approval before the Delaware Supreme Court.

On Aug. 14, AMC published a letter to stockholders from Aron signaling the company’s intention to implement proposals approved by shareholders including an increase in common shares and a reverse 1-for-10 split of AMC shares, “which together will permit the conversion of all outstanding APE units into AMC common shares.”

On Aug. 21, the Delaware Supreme Court issued an order denying Izzo’s request to reinstate the status quo order that had prevented AMC Entertainment Holdings from converting its APEs into common stock during the course of the stockholder litigation.
In-Court Bankruptcy Coverage Updates

Diamond Sports Group / Sinclair Broadcast Group

Aug. 1 RSA Business Plan Milestone / Cleansing Materials

DSG’s March 15 RSA included an Aug. 1 milestone by which the debtors were to deliver an agreement with required consenting creditors on a go-forward business plan. On Aug. 1, DSG reported in cleansing materials that “management evaluated numerous scenarios as part of developing a business plan which resulted in a range of outcomes but have yet to agree upon an ‘Acceptable Business Plan’ with the requisite parties under the Restructuring Support Agreement, dated March 15, 2023, by the August 1 milestone.”

Plan Exclusivity Extension / Mediation

Following resistance from both the official committee of unsecured creditors and the ad hoc group of first lien creditors to DSG’s requested 120-day extension of its exclusive periods to file and solicit a plan, Judge Christopher Lopez entered an agreed order on Aug. 10 granting an 80-day extension of DSG’s exclusive periods to file and solicit a chapter 11 plan through Sept. 30 and Nov. 29, respectively.

At an Aug. 17 hearing, Judge Christopher Lopez granted DSG’s emergency motion to appoint Judge David R. Jones and Judge Marvin Isgur as mediators to facilitate the debtors’ reorganization. DSG seeks to mediate all plan issues, according to an emergency motion filed on Aug. 15.

The debtors said that “various case parties,” including the UCC and three organized ad hoc groups - the ad hoc first lien group, the ad hoc secured group and the ad hoc crossover group - have indicated that mediation could help “sort through myriad issues” confronting the debtors’ path toward reorganization. The debtors said the meditation request is urgent as they are operating “under a tight timeline,” which requires that substantial plan progress occur prior to the start of the upcoming NBA and NHL seasons.

Complaints Against Sinclair, JPMorgan

DSG on Aug. 16 filed a redacted version of its fraudulent transfer complaint against ultimate parent Sinclair Broadcast Group Inc. and related entities. The complaint, originally filed under seal on July 19 and joined by the UCC, alleges that for the two-and-a-half-year period that Sinclair “owned, controlled and dominated” the debtors’ RSNs, it pursued a “nefarious strategy” of “raiding” Diamond’s “coffers” of more than $1.5 billion in cash and other assets.

Sinclair responded to the complaint by asking that the bankruptcy court order DSG to immediately assume or reject its 2019 management services agreement, or MSA, with Sinclair. A hearing on the motion is scheduled for Oct. 2 at 3 p.m. ET.

Six days later, on Aug. 21, DSG unveiled its previously sealed fraudulent transfer complaint against two JPMorgan entities. According to the debtors, Sinclair siphoned dividends from the debtors while they were insolvent in order to redeem $850 million of JPMorgan’s preferred equity units, which were the debtors’ lowest-priority securities but which bore redemption obligations guaranteed by Sinclair.


Chapter 11 Preparation

Audacy is preparing for a potential chapter 11 filing to implement a debt restructuring, according to sources. The radio broadcaster presented two proposals to restricted lenders, including amending and extending the first lien debt and equitizing the second lien, or equitizing both tranches, the sources said.

A restructuring may include debt equitization and take-back paper, Reorg reported earlier. Plans may change and the company may restructure its balance sheet on an out-of-court basis, the sources added.
Reorg Coverage Initiations and Deep Dives

Sirius XM Satellite

As reviewed in our initiation report HERE, in our view, the most important consideration for credit investors is how Sirius XM and its largest equityholder, Liberty Media, formally “rationalize” Liberty Media’s 82% equity stake. We believe this is the most likely scenario for Liberty Media to transfer 100% ownership of its Sirius XM common stock to its shareholders on a tax-free basis. We provide below an illustration of such a transaction, modeled after the 2009 DirecTV RMT transaction.
Illustrative Liberty Media Reverse Morris Trust Transaction With Sirius XM Satellite
Sources: Company filings, Reorg estimates

We believe this will be the most likely scenario, as it is tax-efficient from an equity perspective and adds only modest leverage from a credit perspective. Further, Liberty CEO Maffei said on the company’s second-quarter earnings call that “any combination, though it might have for a short period of time a relatively high leverage amount or leverage 4 to 5 times, we know that that cash flow generating capabilities would allow the combined entity to pay that debt down back to the 3.5x target relatively quickly.” On the basis of our estimates below, an RMT transaction would increase SIRI leverage by approximately three-quarters of a turn into the low 4s, consistent with Maffei’s comments.
Reorg Coverage of Media Capital Markets

Primary Analysis

Clear Channel Outdoor priced $750 million - upsized from the proposed $500 million - 9% five-year senior secured notes to address a portion of its 2026 term loan. See our primary note HERE and covenant analysis regarding the new secured notes HERE.
Relative Value
Local TV Broadcasting Relative Value
Sources: Company filings, SolveQuotes
Radio Broadcasting Relative Value
Sources: Company filings, SolveQuotes
Outdoor Advertising Relative Value
Sources: Company filings, SolveQuotes

Full financials for Fundamentals by Reorg subscribers are being updated HERE. To request a trial of Fundamentals by Reorg, please email
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