BANGALORE, July 14 (Reuters) - U.S. TV station owner Sinclair Broadcast Group Inc (SBGI.O) said a potential insolvency of its partner, Cunningham Broadcasting, could trigger its own bankruptcy.
Cunningham Broadcasting, which recently defaulted on delivering a year-end financial statement under a credit pact, is Sinclair’s local marketing agreement partner for six stations.
Cunningham Broadcasting received a waiver and the bank group extended payment of $33.5 million, which was due June 30, by a month, Sinclair said in a conference call with analysts on Tuesday.
Sinclair’s marketing agreement with Cunningham was expected to generate about $77 million in revenue in 2009. Analysts are expecting total revenue of $634.5 million for the period.
The company, which operates 58 TV stations in 35 U.S. markets, like most media companies is grappling with a relentless decline in advertising revenue brought on by the prolonged downturn.
In a filing with the Securities and Exchange Commission dated July 10, Sinclair had warned it might have to file for bankruptcy protection if it fails to refinance its debt.
The company had total outstanding debt of $1.33 billion as of March 31, it noted in the filing.
Sinclair said negotiations with some of its noteholders on refinancing options have taken longer than expected due to Cunningham’s financial problems.
The company said it was in talks with Cunningham Broadcasting to delay or avoid its partner’s potential bankruptcy and may need to amend its marketing agreements.
Cunningham’s estimated 2009 direct contribution to Sinclair’s broadcast cash flow was $26.2 million.
Sinclair expects an annual indirect impact of about $24 million to $34 million to its cash flow if it terminates its agreement with Cunningham.
On July 13, S&P and Moody’s lowered their ratings on the company’s debt, saying a default by Cunningham would likely cause a default under Sinclair’s credit facility and accelerate repayment of debt.
Lower debt ratings make it more expensive for companies to borrow capital.
The Hunt Valley, Maryland-based company said it had retained CRT as financial adviser and J.P. Morgan as deal manager to assist with restructuring its debt.
Shares of the company closed down 25 percent at $1.10 Tuesday on Nasdaq. They had touched an all-time low of 85 cents during the session. (Reporting by Sayantani Ghosh and Saumyadeb Chakrabarty; Editing by Vinu Pilakkott)