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The Diamond Sports Group, the Sinclair-owned subsidiary that operates the Bally Sports RSNs, continues inching closer to bankruptcy.

Per Bloomberg, Diamond could skip an interest payment of $140 million due in February, which would result in a 30-day grace period and could lead to a restructuring and Chapter 11 bankruptcy.

With financial troubles mounting, the Sinclair Broadcast Group Inc.-owned firm will likely skip $140 million in interest payments due mid-February, kickstarting a 30-day grace period, according to people familiar with the matter. A stark divide is emerging between would-be winners and losers: its $630 million first-lien loan is trading at 92 cents on the dollar, while nearly $5 billion of lower-ranked bonds change hands for under 10 cents — signaling a near-total wipeout for subordinated creditors. 


The restructuring plan favored by many creditors and the company itself would see the largest lenders becoming owners, turning much of its debt into equity through a pre-arranged Chapter 11 process, according to people with knowledge of the matter, who declined to be identified citing the private nature of the talks.

A Bloomberg source says the restructuring could be completed by May or June, and Diamond Sports would then look for buyers.

As for rights fees, it’s still uncertain whether or not they’ll be withheld after the declaration of the bankruptcy, or if Diamond will end contracts signed with teams.

In a bankruptcy, Diamond would have the option of ending contracts with teams, potentially cutting off crucial industry revenue while also allowing teams to reclaim their media rights. The company could also halt payments to the teams while keeping the contracts in place. If a deal is not reached, both MLB and creditors are preparing for baseball teams not to be paid, according to two people. 

Another person familiar with the matter downplayed the prospect that Diamond would discontinue rights payments in a bankruptcy, adding that the company is open to bringing in teams and leagues as equity partners in any restructured entity.

In December, Diamond’s Paul Caminiti said “The idea of rejecting MLB contracts is unequivocally false. DSG is committed to enhancing and strengthening our relationships with the MLB, NBA and NHL by fulfilling our contractual obligations and acquiring more rights.”

But over the summer, a report about potential Chapter 11 bankruptcy stated that “Diamond would likely not be required to make ongoing postpetition payments to counterparties under the rights contracts until either the assumption of a particular contract (at which time Diamond would be obligated to cure any past defaults, including nonpayment) or confirmation of a plan (at which time the counterparty would be entitled to payment in full of an administrative expense claim for postpetition value provided to the debtors),” meaning the company could continue airing games without paying teams.

That might not be a huge deal if a bankruptcy is resolved by the summer, as the Bloomberg report mentions, but would be a very big problem if it stretches out longer.

So essentially, the position is still unchanged *right now,* but it could get a lot worse pretty quickly. Buckle up!


About Joe Lucia

I hate your favorite team. I also sort of hate most of my favorite teams.