Sinclair gives Wall Street the jitters


Sinclair Broadcast Group saw its stock drop 20.7% on Monday after the company said in an SEC filing that it has not been able to come to terms with holders of its convertible bonds. The company also disclosed that it is having difficulties selling off non-TV assets and provided new financial forecasts. Sinclair management will be conducting a conference call with analysts and investors this afternoon to talk about the situation.

Sinclair’s SEC filing, disclosing previously non-public information from its negotiations with the bond holders, was summarized by Wells Fargo Securities analyst Marci Ryvicker as saying: i) business is currently showing no signs of recovery, ii) a slow advertising recovery is anticipated some time in H2 2010, iii) SBGI is unable to sell non-TV investments due to a lack of buyers with access to credit, iv) Cunningham Broadcasting Corp., SBGI’s LMA partner, is at risk of bankruptcy and v) SBGI provided financial forecasts for 2009 quarters and 2010 full year results.

Because of those new numbers, Ryvicker has reduced her estimate of Sinclair’s full year 2009 revenues to $531 million from $539 million. But that’s not what’s really pressing down on the stock price. “Menti0ns of a potential equity raising and bankruptcy are clearly not in equity investors’ favor, in our view,” the analyst noted.

Today’s conference call is likely to focus on Sinclair’s discussions regarding the convertible bonds and what its options are.

Ryvicker noted that Sinclair had about $1.3 billion of debt outstanding at the end of Q1, including $488.5 million relating to the two issues of convertible bonds. The 3.0% convertibles are due to be paid in full, face value of $345 million, on May 15, 2010, and the 4.875% convertibles, face value of $143.5 million, on January 15, 2011. “As SBGI does not have the cash necessary to meet these repurchase obligations, the company began refinancing discussions with the convert holders with no outcome as of yet.  SBGI may pursue other options, such as raising additional debt or equity or even pursuing a voluntary bankruptcy filing under Chapter 11,” she explained.