Sinclair, Cunningham Rework LMA Deal - Broadcasting & Cable

Sinclair, Cunningham Rework LMA Deal

New agreement terms will help keep Cunningham out of bankruptcy
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Sinclair Broadcast has entered into a non-binding memorandum of understanding (MOU) with Cunningham Broadcasting to rework its local marketing agreement (LMA) deals with Cunningham.

The two Maryland-based companies are closely aligned, with various members of the Smith family owning the bulk of both broadcasters. The LMAs with the six Cunningham stations earn Sinclair about $70 million annually. In July, Sinclair execs said Cunningham could drag both into bankruptcy if Cunningham were to default on its loan.

Cunningham is still facing "significant financial and economic challenges," said Sinclair in an 8-K form, with a significant debt balance due Oct. 30, after multiple extensions. The approaching deadline prompted both parties to restructure their arrangement.

"To delay or avoid any potential bankruptcy of Cunningham, the lenders under Cunningham's existing credit facility have indicated their willingness to replace such credit facility with a new credit facility, which is conditioned upon Cunningham's demonstration that it can repay the outstanding principal balance due under the facility within three years," said Sinclair. "As a result, Cunningham asked us to restructure certain of its arrangements with us, including the LMAs, which negotiations led to the execution of the MOU."

Sinclair announced that it is commencing cash tender offers for all its outstanding 3.0% and 4.875% Convertible Senior Notes. Under the broadcasters' agreement, Cunningham will not seek to reject the LMAs if it files for bankruptcy protection. The LMAs will terminate in July 2016, provided that Sinclair will have options to extend the term.

Under the new terms, beginning on January 1, 2010 and ending July 1, 2012, Sinclair will be obligated to pay Cunningham approximately $29.1 million in 10 quarterly installments of $2.75 million and one quarterly payment of approximately $1.6 million, which will be used to pay off Cunningham's bank credit facility. An additional $3.9 million, approximately, will be paid in two installments July 1, 2012 and October 1, 2012 as an additional LMA fee.

Starting October 1, 2012, Sinclair will be obligated to pay Cunningham an annual LMA fee for the stations equal to the greater of either 3% of each station's annual net broadcast revenue or $5 million.

Both companies are hopeful the new agreement terms keep Cunningham-and, therefore, Sinclair--on solid economic footing.

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