Thu 10/07/2021 19:24 PM
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Sinclair Broadcast Group cleansed this afternoon two proposals made to creditors at its Diamond Sports subsidiary. The term sheets, shown below, consist of a proposal to secured creditors dated Sept. 27 and a proposal to unsecured noteholders dated Sept. 28.

In both cases the proposals contemplate Diamond receiving $600 million in new-money financing. Both proposals include the concept of issuing debt with enhanced credit support compared with Diamond’s existing first lien debt:

  • The proposal to the secured creditors provides for the issuance of both first lien and second lien superpriority debt that would be senior to the company’s existing debt.

  • The proposal to the unsecured noteholders contemplates the issuance of new-money first lien debt and “tranche 1” rollup debt that provides “document tightening as compared with existing 1L notes.” Additionally, this new money and “tranche 1” rollup debt would receive a “springing maturity” in October 2025 if the existing 5.375% secureds are not refinanced.

Both proposals contemplate an exchange of currently outstanding debt into new secured debt.

While the proposal to the secured creditors suggests “revisions to include significant reductions to basket capacity contained in existing 1L debt” and limitations on the “unrestricted subsidiary concept,” the proposal to the unsecured noteholders only contemplates the vague “document tightening” referenced above.

Sinclair explains in its 8-K that it entered into nondisclosure agreements with certain lenders and secured and unsecured noteholders “for the purpose of engaging in discussions with such Lenders and noteholders and their respective advisors concerning potential interest in funding new DSG indebtedness and exchanging and/or repurchasing existing DSG indebtedness.”

However, the company indicates that the discussions are dependent in part on the outcome of Sinclair and Diamond’s ongoing discussions with interested parties and commercial partners regarding involvement in a proposed direct-to-consumer platform. The company says that it has made “progress” with lenders and noteholders regarding a transaction but that no definitive agreement has been reached and therefore it has cleansed the materials.

On its second-quarter earnings call on Aug. 4, Sinclair said it was “comfortable” that Diamond has “sufficient” liquidity to operate “over the next 12 months.” The company previously disclosed term sheets from discussions with creditors held during the March and April time periods.

Diamond’s capital structure as of June 30 is shown below:

Proposal to Secured Creditors

The proposal to the secured creditors provides for $600 million of new money for a “First Priority Superpriority Debt” debt that would be senior to the current Diamond first lien debt.

The new-money first-priority superpriority debt would be offered to all existing first lien holders on a pro rata basis and requires a minimum participation of a majority of first lien loans and at least two-thirds of the first lien notes. Additionally, the proposal’s 3% backstop fee to “backstopping lenders” implies that first lien term loan lenders will backstop the transaction.

The $600 million new-money first-priority superpriority debt would mature in March 2026 and is proposed to be priced at L+7% with a 0.75% floor, or a “fixed-price equivalent,” with an implied 1% issuance discount to “participating lenders.”

The proposal also provides for up to $6.34 billion of “Second Priority Superpriority Debt,” which would be senior to existing first lien debt and mature in August 2026, which is five months after the first-priority superpriority debt matures.

As a potential means for additional deleveraging flexibility, the secured creditors proposal references:

  • A “Basket for exchange of Unsecured or Secured debt into additional Second Priority Debt equal to 85% of 1L Debt less Second-Priority Debt issued to participating 1L, provided exchange at minimum [35]% discount to par and completed within 6 months of closing”; and

  • An “Unlimited basket for exchange of Unsecured Notes into additional junior lien debt (behind outstanding 1L debt), provided total cash interest expense of junior lien exchanged debt cannot exceed total cash interest expense of unsecured debt so exchanged.”

The secured creditors proposal is shown below:

(Click HERE to enlarge.)

Proposal to Unsecured Noteholders

In Diamond Sports’ proposal to unsecured noteholders, the company is proposing $600 million of new-money first lien notes including a 3.5% backstop fee to be paid in cash. The $600 million in new money is bracketed in the disclosed term sheet. The disclosure states that the cash proceeds from the new-money first lien notes would be held in escrow and released upon commercial launch of the company’s direct-to-customer, or DTC, streaming service. The new-money first lien notes and “tranche 1” would have a lien on the escrow cash.

In addition, the company is proposing a three-tranche exchange for the rollup of existing unsecured notes. The three-tranches reflect the following:

  • Tranche 1: Rollup of unsecured notes into up to $100 million of first lien notes on same terms as the new-money first lien notes at par (this tranche would only be available to the extent that the company receives less than $600 million in new-money first lien notes).

  • Tranche 2: Rollup of the unsecured note into first lien notes on substantially the same terms as the existing secured notes at (bracketed) 10% discount.

  • Tranche 3: Rollup of the unsecured note into first lien notes on substantially the same terms as the existing secured notes at (bracketed) 30% discount.

According to the disclosure, tranches 1 and 2 of the exchange debt would be limited to lenders who provide the new-money financing for the new $600 million first lien notes. Tranche 1 would have document tightening compared to the existing first lien notes, while tranches 2 and 3 would have the same credit support and consistent covenants as the existing first lien notes.

The new-money first lien notes and Tranche 1 would mature in October 2027 with a spring forward maturity to October 2025 if the existing 5.375% senior secured notes due 2026 are not refinanced. Tranches 2 and 3 would mature in November 2025 and at least 91 days outside the existing term loan maturity on Aug. 24, 2026. Proposed interest rates and additional proposed terms are shown below:

(Click HERE to enlarge.)
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