Sinclair reworks Cunningham LMAs


It looks like Sinclair Broadcast Group has achieved the resolution of all of its financial issues in one big package, which the company has been working on since July. It has reworked its LMAs to help Cunningham Broadcasting get square with its lenders and is tendering for its own convertible bonds.

Cunningham Broadcasting owns six major network affiliates which Sinclair has long LMA’d in markets where it cannot own a second station under the FCC’s current duopoly rules. All voting interest in Cunningham is held by Carolyn Smith via a trust. She is the mother of Sinclair CEO David Smith and his three brothers, who are the largest shareholders of the publicly traded Sinclair.

The administrative agent for Cunningham’s bank lender group declared a technical default in June and the company has been negotiating with its lenders since that time, with the bank credit facility currently extended to the end of this month. According to a Thursday SEC filing by Sinclair, Cunningham’s lenders have declared their willingness to issue a new credit facility, so long as Cunningham can demonstrate its ability to repay the balance within three years. To that end, Sinclair has restructured its LMAs so that it will pay Cunningham $29.1 million in 10 quarterly installments, all of which will go to pay down debt. That money, however, will be credited toward the purchase price should Sinclair ever be able to buy the stations outright.

In return, Cunningham will not seek to reject the LMAs should it enter Chapter 11 without allowing Sinclair a reasonable amount of time to negotiate mutually agreeable amendments. Assuming Cunningham doesn’t end up in bankruptcy court, Sinclair will have three options to extend the LMAs, each for five additional years, once the reworked LMAs expire on July 1, 2016. So those options could keep the LMAs going until 2031. Cunningham, however, will have a right to “put” the stations to Sinclair or its designated buyer at the end of each of those LMA terms.

Sinclair also announced that it is making a tender offer to buy back any and all of its outstanding 3% convertible senior notes due 2027 and 4.875% convertible senior notes due 2018. The holders of those notes have a right to require the company to buy them back at 100% of face value in May 2010 and January 2011, respectively.

Sinclair said it will issue second lien notes in a private placement to finance the tender offers.

RBR-TVBR observation: Yet another sign that the capital markets are improving for broadcasters. Sinclair is making a private placement to fund the tender offers, which would have been almost impossible to do a few months ago.