NOTES PAYABLE, FINANCE LEASES, AND COMMERCIAL BANK FINANCING

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

NOTES PAYABLE, FINANCE LEASES, AND COMMERCIAL BANK FINANCING

NOTES PAYABLE, FINANCE LEASES, AND COMMERCIAL BANK FINANCING:

Bank Credit Agreements

Each of the bank credit agreements of Sinclair Television Group, Inc. (STG), a wholly owned subsidiary of the Company, and DSG (collectively, the Bank Credit Agreements) 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, 2021, neither STG nor DSG was subject to the respective financial maintenance covenant under their applicable Bank Credit Agreement. As of September 30, 2021, 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 twelve 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 with which the respective entities were in compliance as of September 30, 2021.

On April 1, 2021, STG amended the STG Bank Credit Agreement to raise term loans in an aggregate principal amount of $740 million (STG Term Loan B-3), with an original issuance discount of $4 million, the proceeds of which were used to refinance a portion of STG's term loan maturing in January 2024. The STG Term Loan B-3 matures in April 2028 and bears interest at LIBOR (or successor rate) plus 3.00%. As of September 30, 2021, the Term Loan B-3 balance, net of debt discount and deferred financing costs, was $733 million.

Accounts receivable securitization facility

On September 23, 2020, 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 the local sports segment.

The outstanding balance under the A/R Facility was $183 million and $177 million as of September 30, 2021 and December 31, 2020, respectively. Accounts receivable held by DSPV were $243 million and $228 million as of September 30, 2021 and December 31, 2020, respectively. See Note 13. Subsequent Events for discussion related to the modification of this arrangement.

DSG's ability to make scheduled payments on its debt obligations depends on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, competitive, legislative, regulatory and other factors beyond its control. The impact of the outbreak of COVID-19 continues to create significant uncertainty and disruption in the global economy and financial markets. Further, DSG’s success is dependent upon, among other things, the terms of its agreements with Distributors, OTT and other streaming providers. Primarily as a result of losses of Distributors, increased subscriber churn and the COVID-19 pandemic, DSG has experienced operating losses since the second quarter of 2020 and we expect DSG will continue to incur operating losses in future periods. DSG has taken steps to mitigate the impacts of this uncertainty, including managing their controllable costs, amending their A/R Facility and seeking to modify the terms of some of their commercial and lending agreements. We anticipate DSG’s existing cash and cash equivalents, cash flow from our operations, and borrowing capacity will be sufficient to satisfy its debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. However, certain factors, including but not limited to, the severity and duration of the COVID-19 pandemic and resulting effect on the economy, our advertisers, Distributors, and their subscribers, could affect DSG’s liquidity and ability to maintain a level of cash flows from operating activities sufficient to permit DSG to pay the principal, premium, if any, and interest on its debt.

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, 2021 and December 31, 2020. Notes payable, finance leases, and commercial bank financing, less current portion, in our consolidated balance sheets includes finances leases to affiliates of $4 million and $6 million as of September 30, 2021 and December 31, 2020, respectively. See Note 10. Related Person Transactions for further discussion.

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

STG jointly, severally, unconditionally, and irrevocably guaranteed $44 million and $49 million of debt of certain third parties as of September 30, 2021 and December 31, 2020, respectively, of which $13 million and $16 million, net of deferred financing costs, related to consolidated VIEs that are included in our consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively. These guarantees primarily relate to the debt of Cunningham Broadcasting Corporation (Cunningham) as discussed under Cunningham Broadcasting Corporation within Note 10. Related Person Transactions. We have determined that, as of September 30, 2021, it is not probable that we would have to perform under any of these guarantees.