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Sinclair Television Group, Inc -- Moody's affirms Sinclair Television Group's Ba3 CFR; outlook is stable

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Rating Action: Moody's affirms Sinclair Television Group's Ba3 CFR; outlook is stableGlobal Credit Research - 08 Mar 2021New York, March 08, 2021 -- Moody's Investors Service ("Moody's") affirmed Sinclair Television Group, Inc.'s (Sinclair) Ba3 corporate family rating (CFR) and Ba3-PD probability of default rating (PDR). Additionally, Moody's affirmed the Ba2 rating on the company's senior secured credit facility and senior secured notes and the B2 rating on the senior unsecured notes. Sinclair's speculative grade liquidity (SGL) rating was upgraded to SGL-1 from SGL-2. The outlook is stable.The affirmation of Sinclair's ratings follows the company's record political advertising revenue in 2020, which offset the weakness in the company's core advertising caused by the effects of the COVID-19 pandemic on the TV ad market. The upgrade of the company's SGL is driven by the improvement in Sinclair's liquidity profile following the company's record political advertising year, which resulted in the company growing its cash balance to $458 million at the end of December 31, 2020. This coupled with full availability under the company's $650 million revolving credit facility and a long dated maturity profile means Sinclair has very good liquidity going into 2021.Affirmations:..Issuer: Sinclair Television Group, Inc.... Corporate Family Rating, Affirmed Ba3.... Probability of Default Rating, Affirmed Ba3-PD....Senior Secured Bank Credit Facility, Affirmed Ba2 (LGD3)....Senior Secured Regular Bond/Debenture, Affirmed Ba2 (LGD3)....Senior Unsecured Regular Bond/Debenture, Affirmed B2 (LGD5)Upgrades:..Issuer: Sinclair Television Group, Inc.... Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2Outlook Actions:..Issuer: Sinclair Television Group, Inc....Outlook, Remains StableRATINGS RATIONALESinclair's Ba3 CFR is supported by the company's established brand, its scale and the significant reach of its network of broadcast channels. The company is one of the largest US broadcasters with 628 channels on 188 TV stations in 88 markets as of December 31, 2020. The company's revenue model benefits from a mix of recurring retransmission fees that help offset the inherent volatility of traditional advertising related revenue. The company benefited from record political advertising demand from the US presidential election in 2020, which drove the company's ability to generate about $650 million of free cash flow in FY 2020, despite the steep core advertising declines caused by COVID-19.Sinclair's Ba3 CFR also reflects the sharp downturn in core TV advertising demand in 2020 as a result of lockdowns related to the COVID-19 pandemic as well as by the company's financial policy that has historically tolerated high leverage. The resulting shock to the US economy from the coronavirus lead to double digit declines in TV advertising and Sinclair's leverage (Moody's adjusted and on a two year average) remains near 4.7x at the end of FY 2020 compared to our previous expectations that leverage would approach 4.3x by year end. Excluding the effect of the coronavirus, TV advertising remains cyclical and in structural decline as new media forms continue to encroach on TV's share of advertising. Our run-rate expectations are that core TV revenues will decline by low single digit annually as advertising budgets continue to shift towards digital platforms. In addition, the continuing growth rate in retransmission fees may be at risk of accelerating MVPD subscriber losses, with cord cutting trends having accelerated in 2020. In addition, 2021 is a year when Sinclair's EBITDA growth will be pressured by the lack of meaningful retransmission fee increases (only renewal is DISH in September 2021) and increased cost as a third of its big-four channels stepped-up the reverse retransmission fees paid to the networks at the end of 2020.Governance factors that were taken into consideration include Sinclair's financial policy. The company has publicly stated a commitment to a leverage (company's defined net debt/EBITDA) of high 3x to low 4x -- at December 2020, this ratio stood at 4.0x.Sinclair has tolerated higher leverage in the past, especially in the context of M&A, and Moody's adjusted debt to 2-year average EBITDA was around 4.7x at the end of 2020. We expect leverage to remain near 4.7x through 2021. Sinclair's credit policy is somewhat shareholder focused with the distribution of quarterly dividends as well as share buybacks. With regard to dividends, Sinclair has historically paid out approximately 25% of operating cash flow. We expect Sinclair to pay around $60 million of dividends in 2021 and while we do not expect material share repurchases in 2021, we believe these could start again in the second half of 2021 albeit at around 15% to 20% of Sinclair's operating cash flow, lower than the historical average of near 30%.Sinclair's liquidity profile is very good as reflected in its SGL-1 speculative grade liquidity rating. As of December 31, 2020, the company had about $458 million in cash and cash equivalents and almost full availability under its $650 million revolving credit facility. The revolver has a springing 4.5x first lien net leverage covenant, tested at or above 35% utilization. The company generated about $650 million of free cash flow in FY 2020 as a result of record political advertising.The Ba2 (LGD3) rating on the company's senior secured facilities and notes reflects their priority ranking ahead of the B2 (LGD5) rated senior unsecured notes. The instrument ratings reflect the probability of default of the company, as reflected in the Ba3-PD probability of default rating (PDR), an average expected family recovery rate of 50% at default given the mix of secured and unsecured debt in the capital structure, and the particular instruments' rankings in the capital structure.The stable outlook reflects Moody's expectations that despite the disruption caused by COVID-19, Sinclair will continue to operate with metrics commensurate with its Ba3 rating through 2021, in particular leverage (Moody's adjusted on a two-year basis) between 4.25x and 5.5x. The stable outlook also reflects Moody's expectations that the company will maintain a very good liquidity profile in 2021 and beyond.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if:** Debt to 2-year average EBITDA (Moody's adjusted) is sustained comfortably below 4.25x and,** 2-year average Free cash flow to debt (Moody's adjusted) is sustained above 10%A positive rating action would also be contingent on maintaining good liquidity.Ratings could be downgraded if:** Debt to 2-year average EBITDA (Moody's adjusted) rises above 5.5x, or** 2-year average free cash flow to debt (Moody's adjusted) falls below 5%.Deterioration in the company's liquidity could also put pressure on the ratings.Sinclair Television Group, Inc., headquartered in Hunt Valley, MD and founded in 1986, is a leading U.S. television broadcaster. As of December 31, 2020, the company owns and/or operates 188 television stations across 88 markets, broadcasting more than 600 channels across the U.S. The station group reaches approximately 25% of the US population (taking into account the UHF discount). The affiliate mix is diversified across primary and digital sub-channels including ABC, CBS, NBC, and FOX. The company also owns a local cable news network in Washington D.C., four radio stations and the Tennis Channel. Members of the Smith family exercise control over most corporate matters of Sinclair Broadcast Group, Inc. ("SBGI"), Sinclair Television Group, Inc.'s ultimate parent, with four of the nine board seats and approximately 81% of voting rights (through the dual class share structure). Consolidated net revenue for FY 2020 was approximately $3.18 billion.The principal methodology used in these ratings was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Christian Azzi Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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