Diamond Sports’ bonds fell this morning after the company noted on its 4Q20 earnings call that it is in discussions with parties for a potential debt exchange and revealed soft guidance for 2021 as part of its report, according to four buysiders and two sellsiders. 

Management’s brief mention of a possible debt swap on today’s call sparked market discussion on how soon the Sinclair Broadcast Group subsidiary could come to market with a deal. While some sources speculated an imminent announcement, others downplayed the comments noting the company’s tendency to make similar remarks on prior earnings calls.

“The company is biding time. They need to do something holistic to counteract their decreased earnings potential,” one of the sources said.

For its part, management noted that talks remain fluid and that the company is determined to hold off for the right opportunity.

The borrower’s USD 1.75bn 6.625% senior unsecured notes due 2027 traded today as low as 51.5 to yield 20.481%, compared to trades at 55.938 to yield 18.614% yesterday, according to MarketAxess. Its USD 3.05bn 5.375% senior secured notes due 2026 traded at a low of 72.25 with a 12.535% yield today, compared to 77 to yield 11.093% yesterday. 

Diamond Sports in its 4Q20 report guided toward adjusted EBITDA of USD 441m- USD 709m for 2021, driven by market uncertainty and continued subscriber churn. The midpoint of guidance or USD 575m is nearly 32% lower than 2020’s adjusted EBITDA of USD 841m. 

For 4Q20, Diamond Sports clocked in USD 531m of revenue, lower than its guidance of USD 560m. Adjusted EBITDA also came in at USD 194m, compared to guidance of USD 234m. 

At year-end, the company’s leverage as measured against its covenant totaled 6.3x, past its springing covenant threshold of 6.25x, but the test doesn’t come into effect until the company has drawn more than 35% of its revolver, three of the sources said. As of 31 December, the company has USD 783m of cash and an undrawn revolver. 

The talks of an exchange follow after Sinclair—with the help of company advisor Moelis—attempted an up-tiering exchange. In the failed offering, the company sought to swap all of its outstanding USD 1.8bn 6.625% senior unsecured notes due 2027 for a cash payment along with newly issued 12.75% first lien notes due 2026. Early tender consideration was implied at 60 cents on the dollar, which would have consisted of 46.7 cents in new secured notes and 13.3 cents in cash.

In the end, just USD 66m of the notes tendered in the offer, representing 3.62% of the targeted class.

Subsequent to the deal, Diamond Sports creditors at all levels positioned themselves to wield influence ahead of another attempt to fix the capital structure late last year. To that end, first lien lenders and bondholders selected Evercore as its financial advisor and a secured crossholder group retained Gibson Dunn as legal counsel. For its part, a group of unsecured bondholders tapped advisor PJT and Stroock.

Diamond Sports did not respond to a request for comment.

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