Downgrade triggers conversion at Sinclair


A two-notch downgrade by Moody’s Investors Service has made some Sinclair Broadcast Group bondholders eligible to convert their bonds to common shares.

Sinclair announced that a “conversion upon a credit rating event” had occurred on its 4.875% Convertible Senior Notes due 2018. “Pursuant to the terms of the indenture governing the notes, any holder of the notes may surrender all or any portion of his or her notes for conversion into the company’s common stock at any time at the then-applicable conversion rate, if the credit ratings assigned to the notes by either Moody’s Investor Services or Standard & Poor’s are ever two notches (or more) less than the rating assigned to the notes as of the issue date by either agency,” Sinclair explained.

On June 16th, Moody’s reduced the ratings on the $143.5 million face amount of the 4.875% notes to Caa2 from their initial rating of B3, a two ratings notch decline. As a result, holders of the otes have the option to convert each $1,000 of principal amount of the notes held into 44.7015 shares of the company’s common stock (equivalent to a conversion price of approximately $22.37 per share).

Sinclair’s stock has lately been trading below $2, so it appears unlikely that many noteholders will be rushing to make the conversion. In fact, in making the downgrade, Moody’s cited the likelihood that holders of the notes referred to above and another series of convertible notes will exercise their rights to put the notes to the company in May 2010 and January 2011 because the company’s stock price is so far below the conversion price.

“Moody’s expects that Sinclair would seek to repurchase the convertible notes at a discount to par if new external financing is obtained,” the credit rating agency noted. But it also noted the current market difficulties in arranging such financing.