S&P Global Thursday revised the credit outlook for Sinclair Broadcast Group to negative from positive given combined pressure from the coronavirus and the debt-funded acquisition last year of the Fox Sports Networks.
Sinclair acquired the networks for $9.6 billion, funded with $8.9 billion in debt.
“We believe there is still a path for Sinclair to reduce its leverage in 2020 due to its relatively stable distribution revenue and an expected increase in political advertising revenue, though uncertainty stemming from coronavirus creates the risk that the company will be unable to achieve this,” S&P said. The negative outlook reflects uncertainty around the extent of coronavirus’ impact on the company’s performance and its ability to reduce its leverage comfortably below 5.5x over the next year.”
We could lower the rating on Sinclair if a prolonged advertising recession reduces the company’s advertising revenue. The agency also said its previous estimates assumed that video distributors that hadn’t previously offered the regional sports networks (such as Marquee) would add the channels to their lineup when the 2020 MLB season began. So further delays to sporting events could prolong the timeline for the regional sports networks to gain carriage and prevent the company from improving its operating income.
It said it could revise the outlook on Sinclair to stable if the virus has a more limited effect on the company’s business over the next year.