Now that Sinclair Broadcast Group has resolved some major financial issues, Moody’s Investors Service is reversing course. Instead of having Sinclair’s credit ratings under review for a possible downgrade, they are now under review for a possible upgrade.
The change by Moody’s came after Sinclair announced a reworking of its LMAs of Cunningham Broadcasting’s stations, which will result in Cunningham’s lenders renewing their loans, and a tender by Sinclair for two issues of convertible notes, with a private placement of new bonds providing the funding. Moody’s said its new review reflects its “increased level of confidence that a better projected revenue environment and improved credit market conditions will allow Sinclair to access markets at sufficiently economic terms to address its near-term liquidity needs and sustain the existing capital structure. The progress that Sinclair has made in negotiating terms of financing arrangements and the potential resolution of material negative contingencies relating to Cunningham and the LMA are also key considerations.”
Moody’s said its review will look at how successful Sinclair is with the private placement, how the company plans to deal with the convertible notes which are not tendered as they become “putable” for cash. It will also review Sinclair’s liquidity position and the impact of the reworked LMAs.
The result could be not just an upgrade, but a multi-step upgrade, Moody’s noted.
“Given the company’s debt-to-EBITDA leverage (approximately 6.9x LTM 6/30/09 incorporating Moody’s standard adjustments), Moody’s would consider a multi-notch Corporate Family Rating (CFR) upgrade if Sinclair can resolve its refinancing needs, maintain an adequate projected liquidity position to get through the current advertising downturn, and continue to generate meaningful free cash flow after absorbing the incremental LMA and interest costs. Moody’s also anticipates that the Probability of Default Rating would return to a level in line with the CFR if an improvement in Sinclair’s liquidity position reduces near-term default risk, which would in turn result in adjustments to the loss given default assessments,” Moody’s said in announcing the review.