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Buying time at Sinclair

Apr 9, 2001  •  Post A Comment

Sinclair Broadcast Group’s recent loan refinancing, while planned, underscores the kinds of financial challenges all broadcasters face at a time when declining advertising revenues are beginning to impact debt payments and overall spending.
Sinclair confirmed it has secured a new agreement with J.P. Morgan Chase & Co. for a $1.1 billion loan that will replace an existing 31/2-year loan for $1.6 billion. The new pact gives Sinclair more time to make debt payments in exchange for a higher yield than it has been paying. Still, company officials say their overall payments will be less than what they have been.
The company would have had to make a $100 million payment this year under its 1998 loan agreement. Other terms and details of the new loan agreement have not been set.
Sinclair officials last week made it clear that their move is not in response to debt service difficulties but to a loan agreement that was due for restructuring.
“We were never in default of our bank agreements,” said David Amy, Sinclair’s executive vice president and new chief financial officer. “We said in February, when we provided some guidance to investors, that given our bank covenants and our total bank leverage, we would exceed those numbers if we did nothing. But we have done something.”
Sinclair also is offering to sell institutional investors, such as mutual funds and insurance companies, the remaining $500 million in debt. Sources say J.P. Morgan has approached other lenders about collectively contributing about $75 million of the new loans.
The company has an $800 million revolving credit agreement available for general operating needs and to make loan payments when and if its cash flow falls short. Sinclair said earlier this year that its 2001 revenues and cash flow will be well below 2000 levels, making it more difficult to make debt payments and to maintain debt-to-earnings ratios that are part of its existing loan covenants.
“Right now we are in compliance with our bank covenants. We just want to give ourselves some flexibility, given the current environment,” said Lucy Rutishauser, Sinclair’s treasurer.
Last week, Sinclair officials declined comment on whether the company is prepared to stick by its original projections for this year. The company is expected to address the matter when it announces its first quarter earnings April 26.
Standard & Poor’s in February revised its outlook on Sinclair to “negative” from “stable” on concerns that the ad slump and high capital spending will further undermine the company’s financial profile.
“The real crapshoot in a bear market: Does a company like Sinclair hit its own financial targets, or does it get a lot worse?” said Bishop Cheen, veteran broadcast analyst at First Union.
Advertising-supported media companies have been providing more optimistic financial performance guidance on the assumption that revenues will pick up in the second half of 2001.
“If you take a look at the sentiment on Wall Street, no one seems to be expecting that to happen now,” he said. “The advertising slump will bottom out and turn. The question is when will it turn and how much damage will be done in the meantime.”
Clearly, Sinclair and other broadcasters already are being hurt by the prolonged advertising slump.
Jessica Reif Cohen, analyst at Merrill Lynch, last week painted a trying financial year for Sinclair due to the impact of the sharp downturn in advertising.
Ms. Cohen said she expects Sinclair to have declining earnings and no free cash flow, especially in light of the $76 million the company earmarked for capital improvements relating to duopolies and digital conversion.
Sinclair stock, which has declined more than 20 percent so far this year, fell 12.5 cents to close at $7.25 per share on the news April 3.