Sinclair Not Clinching Top Ratings, Could Add To Credit Risk

Sinclair Broadcast Group does not always produce the number one television station in its market, causing concern for Moody's Investors Service regarding the company's credit risks. "For example, if you had a television station in Baltimore, [Sinclair] may have a number three station," said Christina Padgett, senior credit officer, explaining Sinclair's primarily just-below-the-top rankings throughout its 62 television stations in 39 markets. The ratings service assigned a Ba2 rating to the company's incremental term loan due 2009 on account of this risk, along with other concerns. David Amy, executive v.p. and cfo of Sinclair, responded that the rating is in line with the company's other ratings, however he was unable to comment further on the incremental term loan.

The company's high leverage is also reflected in the rating, Padgett stated. As of last September, Sinclair's leverage multiple stood at 7.6 times. The company's cash flow coverage of interest and derivatives is also thin at 1.2 times, when comparing EBITDA to capital expenditures. The company's size and geographic diversity is a strong point, Padgett said, adding that Sinclair's margins are sound considering that it is not usually the best rated in its markets. Also, near-term improvements are expected for Sinclair's credit statistics because of strong political advertising earlier this quarter.

Moody's additionally sees Sinclair's liquidity position strengthened, as it does not expect the company to tap its $225 million revolver except possibly for future acquisitions. Moody's furthermore recognizes Sinclair's more-than-ample collateral coverage to its creditors. The company's add-on senior subordinated notes due 2012 have been rated B2. J.P. Morgan currently leads Sinclair's $600 million facility, rated Ba2. The ratings outlook is stable for the Baltimore-based company. Sinclair's total debt is about $1.6 billion, Padgett noted.