Bonds backing Diamond Sports Holdings LLC tumbled this morning on weaker-than-expected earnings, though the paper bounced off lows after management at parent Sinclair Broadcast Group Inc. said it is considering another debt exchange.
Having dipped to a three-month low of 51.5, the 6.625% senior notes due 2027 at subsidiary Diamond Sports Group LLC, or DSPORT, had by noon ET today climbed to trades around 53.5. The bonds hit a nadir at 37 on Oct. 27 as S&P Global Ratings placed the company's BB- rating on Credit Watch Negative, but it had climbed back to around 68 by late January. That was still 5 points shy of the post-downturn high in June after the company completed the exchange of some $66 million in outstanding 6.625% senior notes due 2027 for roughly $31 million in new 12.75% senior secured notes due 2026, plus cash.
The DSPORT 5.375% secured notes due 2026 pared a nearly 5-point loss this morning but were still off more than 2 points on the session, at 74.75. That compares with October 2020 lows around the 60 mark and a Jan. 18 pandemic-era peak just below 89.
Diamond Sports' fourth-quarter numbers were slightly weaker than expected, with revenue coming in at $531 million, $257 million lower than the prior year and $26 million below the low end of the company's guidance. Adjusted EBITDA for the period was $209 million, versus guidance of around $237 million, with management attributing both shortfalls to the $168 million of distributor rebates it accrued in the quarter. Full-year revenue was $2.686 billion and adjusted EBITDA was $841 million.
Diamond Sports represents about half of Sinclair's consolidated revenue, which has faced headwinds across its 21 regional sports networks since its purchase in 2019. S&P Global Ratings on Jan. 27 hit Sinclair with a one-notch downgrade to B+, citing underperformance at Diamond Sports Holdings.
At the same time, S&P Global Ratings downgraded Diamond Sports Group to CCC+ from BB- with a negative outlook on the possibility of a distressed debt exchange or repurchase. Ratings said it no longer expects Sinclair to provide financial support to Diamond Sports, leading it to de-link the ratings and characterize DSPORT's capital structure as "unsustainable" and vulnerable to a debt restructuring.
Sinclair CEO Chris Ripley was asked on this morning's analyst call if the company is considering another exchange offer as a way to reduce leverage and/or the interest burden on the unit. Sinclair noted that management is actively discussing that option but that he could not comment on the timing, adding, "We're more interested in doing the right deal as opposed to just any deal. And another exchange, I think, could be very likely."
On the same call, Sinclair CFO Lucy Rutichauser also confirmed that the company has no plans to draw on Diamond Sport's $300 million revolver in the coming months, pointing out that the first quarter typically is the lowest in terms of EBITDA when it comes to regional sports networks. The facility has a total net leverage covenant of 6.25x, which springs if the revolver is more than 35% drawn. Diamond Sport's first-lien debt ratio for the trailing-four-quarters was 6.3x. The unit's total net leverage is 8.3x. Sinclair reported total company debt at year-end 2020 was roughly $12.6 billion, including Diamond Sports' debt of more than $8.1 billion. Consolidated cash at the end of the quarter was roughly $1.3 billion, including $783 million of cash at the subsidiary.
Management offered 2021 guidance for Diamond Sports "given investor and creditor interest around Diamond's performance and outlook," the CFO said. The company offered up a wide range of $3.326 billion to $3.54 billion for full-year revenue and an even wider range of $441 million to $709 million for adjusted EBITDA.
