NOTES PAYABLE, FINANCE LEASES, AND COMMERCIAL BANK FINANCING

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

NOTES PAYABLE, FINANCE LEASES, AND COMMERCIAL BANK FINANCING

NOTES PAYABLE, FINANCE LEASES, AND COMMERCIAL BANK FINANCING:

Bank Credit Agreements

Each of STG’s and DSG’s bank credit agreements (the Bank Credit Agreements) provide a $650 million five-year revolving credit facility, whereby STG’s revolving credit facility (the STG Revolving Credit Facility) is priced at LIBOR plus 2.00% and DSG’s revolving credit facility (the DSG Revolving Credit Facility and, together with the STG Revolving Credit Facility, the Revolving Credit Facilities) is priced at LIBOR plus 3.00%, subject to decrease if the specified first lien leverage ratio (as defined in the respective Bank Credit Agreements) is less than or equal to certain levels.  On March 17, 2020, we drew $648 million and $225 million under the STG Revolving Credit Facility and the DSG Revolving Credit Facility, respectively, as a precautionary measure given the COVID-19 pandemic.  During the quarter ended June 30, 2020, the Company fully repaid the amounts outstanding under each of the Revolving Credit Facilities.

The Bank Credit Agreements each include a financial maintenance covenant, the first lien leverage ratio (as defined in the respective Bank Credit Agreements), which requires such applicable ratio not to exceed 4.5x and 6.25x, measured as of the end of each fiscal quarter, for STG and DSG, respectively. The respective financial maintenance covenant is only applicable if 35% or more of the capacity (as a percentage of total commitments) under the respective revolving credit facility, measured as of the last day of each quarter, is utilized under such revolving credit facility as of such date. Since there was no utilization under either of the Revolving Credit Facilities as of September 30, 2020, neither STG nor DSG was subject to the respective financial maintenance covenant under their applicable Bank Credit Agreement. As of September 30, 2020, the STG first lien leverage ratio was below 4.5x and the DSG first lien leverage ratio exceeded 6.25x. We expect that the DSG first lien leverage ratio will remain above 6.25x for at least the next 12 months, which will restrict our ability to utilize the full DSG Revolving Credit Facility.  We do not currently expect to have more than 35% of the capacity of the DSG Revolving Credit Facility outstanding as of any quarterly measurement date during the next twelve months, therefore we do not expect DSG will be subject to the financial maintenance covenant.  The Bank Credit Agreements contain other restrictions and covenants which the respective entities were in compliance with as of September 30, 2020.

STG Notes

On May 21, 2020, we purchased $2.5 million aggregate principal amount of STG's 5.875% Notes due 2026 (the STG 5.875% Notes) in open market transactions for consideration of $2.3 million. The STG 5.875% Notes acquired in May 2020 were canceled immediately following their acquisition. We recognized a gain on extinguishment of the STG 5.875% Notes of $0.2 million for the nine months ended September 30, 2020. As of September 30, 2020, the balance of the STG 5.875% Notes, net of deferred financing costs, was $344 million.

DSG Notes

In March 2020 and June 2020, we purchased a total of $15 million aggregate principal amount of DSG's 6.625% Notes due 2027 (the DSG 6.625% Notes) in open market transactions for consideration of $10 million. The DSG 6.625% Notes acquired in March 2020 and June 2020 were canceled immediately following their acquisition. We recognized a gain on extinguishment of the DSG 6.625% Notes of $5 million for the nine months ended September 30, 2020.

On June 10, 2020, we exchanged $66.5 million aggregate principal amount of the DSG 6.625% Notes for cash payments of $10 million, including accrued but unpaid interest, and $31 million aggregate principal amount of newly issued senior secured notes, which bear interest at a rate of 12.750% per annum and mature on December 1, 2026 (the DSG 12.750% Secured Notes and, together with the DSG 6.625% Notes and DSG's 5.375% Senior Secured Notes due 2026, the DSG Notes). As of September 30, 2020, the balance of the DSG 6.625% Notes, net of deferred financing costs, was $1,709 million and the balance of the DSG 12.750% Secured Notes was $55 million, inclusive of a $24 million premium.

Prior to August 15, 2022, we may redeem the DSG 12.750% Secured Notes, in whole or in part, at any time or from time to time, at a price equal to 100% of the principal amount of the applicable DSG 12.750% Secured Notes plus accrued and unpaid interest, if any, to the date of redemption, plus a ‘‘make-whole’’ premium (assuming for purposes of the calculation of such “make-whole” premium that interest were to accrue on the DSG 12.750% Secured Notes at a rate for such “make-whole” period equal to 5.375% per annum). Beginning on August 15, 2022, we may redeem the DSG 12.750% Secured Notes, in whole or in part, at any time or from time to time at certain redemption prices, plus accrued and unpaid interest, if any, to the date of redemption. In addition, on or prior to August 15, 2022, we may redeem up to 40% of the DSG 12.750% Secured Notes using the proceeds of certain equity offerings. If the notes are redeemed during the twelve-month period beginning August 15, 2022, 2023, and 2024 and thereafter, then the redemption prices for the DSG 12.750% Secured Notes are 102.688%, 101.344%, and 100%, respectively.

DSG’s obligations under the DSG 12.750% Secured Notes are jointly and severally guaranteed by Diamond Sports Intermediate Holdings LLC (DSIH), DSG’s direct parent, and certain wholly-owned subsidiaries of DSIH. The DSG 12.750% Secured Notes are not guaranteed by the Company, STG, or any of STG’s subsidiaries.

Accounts receivable securitization facility

On September 23, 2020 (the Closing Date), the Company's and DSG's indirect wholly-owned subsidiary, Diamond Sports Finance SPV, LLC (DSPV), entered into a $250 million accounts receivable securitization facility (the A/R Facility) which matures on September 23, 2023, in order to enable DSG to raise incremental funding for the ongoing business needs of DSG and its subsidiaries.

The A/R Facility was entered into pursuant to a Loan and Security Agreement (the Loan Agreement), dated September 23, 2020, among DSPV, as borrower, the persons from time to time party thereto, as lenders (the Lenders), and Fox Sports Net, LLC (FSN), a wholly-owned direct subsidiary of DSG, as initial servicer, Credit Suisse AG, New York Branch, as administrative agent and Wilmington Trust, National Association, as collateral agent, paying agent and account bank. The Lenders will provide certain loans, which loans will be secured by certain accounts receivable (Pool Receivables) purchased by DSPV pursuant to a Purchase and Sale Agreement (the Purchase Agreement, and together with the Loan Agreement, the A/R Agreements), dated September 23, 2020, among FSN, certain indirect wholly owned subsidiaries of DSG identified therein as originators (the Originators) and DSPV as purchaser, pursuant to which the Originators will sell certain accounts receivable to DSPV and FSN will continue to service such accounts receivable.

The maximum funding availability under the A/R Facility is $250 million, subject to borrowing base and certain other restrictions. The amount of actual availability under the A/R Facility is subject to change based on the level of eligible receivables sold by the Originators to DSPV and certain reserves. Eligibility of the receivables is determined by a variety of factors, including, but not limited to, credit ratings of the Originators’ customers, customer concentration levels, and certain characteristics of the accounts receivable being transferred. In addition, subsequent to November 1, 2020, the total commitment under the A/R Facility will be the lesser of $250 million and the sum of the lowest aggregate loan balance since November 1, 2020 plus $50 million.

Borrowings under the A/R Facility generally bear interest at a rate per annum equal to LIBOR, which is subject to an interest rate floor of 0% per annum, plus 4.97% or, if the aggregate outstanding principal amount of loans is less than $125 million on or after November 1, 2020, 5.47%. We are required to pay a commitment fee on unutilized commitments under the A/R Facility.

We may voluntarily prepay outstanding loans or terminate commitments under the A/R Facility at any time without premium or penalty, other than customary breakage costs with respect to LIBOR rate loans, except (1) any voluntary prepayment (x) from the proceeds of a voluntary repurchase in accordance with the Purchase Agreement by any Originator of any Pool Receivables on or prior to the date that is 18 months after the Closing Date or (y) from the proceeds of a new accounts receivable financing entered into by DSPV or an affiliate thereof and requiring the purchase of Pool Receivables from DSPV after the date that is 18 months after the Closing Date but on or prior to the date that is 36 months after the Closing Date or (2) certain terminations of commitments on or prior to the date that is 18 months after the Closing Date, shall in each case be subject to a prepayment premium of 1.00% of the principal amount of the loans prepaid or commitments terminated, as the case may be.

DSPV, FSN, and the Originators provide customary representations and covenants under the A/R Agreements. Receivables in the A/R Facility are subject to certain eligibility criteria, concentration limits and reserves. The Loan Agreement provides for certain events of default upon the occurrence of which the administrative agent may declare the facility’s termination date to have occurred and declare the outstanding loan and all other obligations of DSPV to be due and payable. The Purchase Agreement provides for certain early amortization events upon the occurrence of which DSPV may terminate the sale and contribution of accounts receivable and related assets thereunder, including an early amortization event which would occur upon Consolidated EBITDA (as defined in the DSG Bank Credit Agreement as in effect at such time) of DSIH and its restricted subsidiaries under the DSG Bank Credit Agreement, less Consolidated Interest Expense (as defined in the DSG Bank Credit Agreement as in effect at such time) of DSIH and its restricted subsidiaries under the DSG Bank Credit Agreement, being less than zero as of the last day of any fiscal quarter (measured on a trailing four fiscal quarter basis).

As of September 30, 2020, the balance of the loans under the A/R Facility was $74 million and the balance of the receivables held by DSPV as part of the A/R Facility was $124 million, included in accounts receivable, net in our consolidated balance sheets. On October 22, 2020, the A/R Facility provided additional funding of $122 million, bringing the outstanding balance of the loans under the A/R Facility to $196 million.

The performance by the Originators of their respective obligations under the A/R Facility is guaranteed by FSN pursuant to a performance guaranty by FSN in favor of Credit Suisse AG, New York Branch, as administrative agent under the Loan Agreement.

Notes payable and finance leases to affiliates

The current portion of notes payable, finance leases, and commercial bank financing in our consolidated balance sheets includes finance leases to affiliates of $2 million as of both September 30, 2020 and December 31, 2019. Notes payable, finance leases, and commercial bank financing, less current portion, in our consolidated balance sheets includes finances leases to affiliates of $7 million and $9 million as of September 30, 2020 and December 31, 2019, respectively.

Debt of variable interest entities and guarantees of third-party debt

STG jointly, severally, unconditionally, and irrevocably guaranteed $51 million and $57 million of debt of certain third parties as of September 30, 2020 and December 31, 2019, respectively, of which $17 million and $20 million, net of deferred financing costs, related to consolidated VIEs that are included in our consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively. These guarantees primarily relate to the debt of Cunningham Broadcasting Corporation (Cunningham) as discussed under Cunningham Broadcasting Corporation within Note 9. Related Person Transactions. We have determined that, as of September 30, 2020, it is not probable that we would have to perform under any of these guarantees.