Diamond Sports Group entered into a restructuring support agreement (RSA) with its largest creditor groups, including more than 85% of the company’s first-lien debt holders, more than 50% of the company’s second-lien debt holders and more than 66% of unsecured bond holders that the company said “provides a framework for a reorganization plan that would enable Diamond to emerge from bankruptcy as a going concern and continue its operations.”
The RSA includes a commitment from certain of the company’s debt holders to provide $450 million of junior secured superpriority debtor-in-possession (DIP) financing, the proceeds of which will be used to support the company’s operations as it finalizes a reorganization plan and repay $350 million of the company’s existing first-lien debt.
According to court filings, interest under the DIP is 10%, with 5% paid in cash and 5% paid in-kind.
The company further said that it has agreed with “key creditors … on financial terms and a go-forward capital structure that will be the foundation of the reorganization plan,” adding, “Certain large holders of Diamond’s debt have committed to make a substantial investment in the company and exchange their debt into equity to be issued by reorganized Diamond.”
In addition, Amazon has committed to make a minority investment in the company and enter into a commercial arrangement to provide access to the company’s services via Prime Video. Under this arrangement, Prime Video will become the company’s primary partner through which customers will be able to purchase direct-to-consumer (DTC) access to stream local Diamond channels. In addition, customers will be able to access all local DTC content, including live MLB, NBA and NHL games, and pre- and post-game programming, for the teams for which the company retains DTC rights, through Prime Video channels.
According to the RSA term sheet, which was filed in the company’s bankruptcy case on Jan. 17, in connection with its reorganization, the company will issue $115 million of new convertible B exit notes to Amazon. Interest under the notes is set at 6.25%, and the notes would be convertible into 15% of the reorganized company’s equity.
In addition, Amazon will have the right for nine months following the company’s emergence from Chapter 11 to invest up to an additional $50 million in common equity of the company based on a $500 million equity valuation.
The company will also issue convertible A exit notes with a term of 5.5 years or an exit term loan with a term of 7.5 years in the aggregate amount of $210 million plus the amount of capitalized interest in the DIP up to a cap of $40 million, with proceeds to be used to partially repay the DIP. Interest would be 17% paid in-kind under the notes and paid in-kind under the term loan for the first 5.5 years and cash thereafter. The notes would be convertible into 25% of the company’s equity.
In terms of distributions under the reorganization plan contemplated by the RSA, DIP lenders would receive, in addition to the proceeds of the exit financing described above, 45% of the reorganized company’s equity, with the DIP commitment parties backing the facility receiving an additional 45% of the equity (in each case subject to dilution from the convertible notes, a management incentive plan and the Amazon investment).
Moving to prepetition creditors, first-lien lenders, with total claims of roughly $630.2 million, would receive $415 million in cash (reduced by any interest paid as adequate protection and the $350 million paydown using DIP proceeds); a take-back term loan of up to $200 million (with a term of four years and interest at 11.5%); and class A interests in a litigation trust to be established under the plan (see below) representing 15% of the litigation proceeds realized by the trust, with the aggregate recovery subject to a cap of $662 million.
Holders of second-lien term loan claims in the estimated amount of $3.2 billion, second-lien note claims in an estimated amount of about $3 billion and unsecured funded note claims in the amount of roughly $1.7 billion would receive the remaining 10% of the reorganized company’s equity and 99% of the Class B interests in the litigation trust, representing a 5% allocation of any litigation proceeds realized by the trust.
General unsecured creditors would receive $5 million in cash and 1% of the Class B interests in the litigation trust.
Most of the proceeds of the litigation trust, 80%, will be held in an entity that is 100% owned by the reorganized company.
According to the term sheet, the litigation trust is to pursue the company’s claims against parent Sinclair Broadcasting. According to the Jan. 17 news release, however, Diamond Sports said it has reached an agreement in principle with Sinclair to settle the pending $1.5 billion litigation between the companies. The company’s creditors that are parties to the RSA back the settlement, the company noted.
Under the settlement, among other things, Sinclair will pay Diamond Sports $495 million in cash and provide ongoing management and transition services to support the company’s reorganization and separation from Sinclair’s operations. It is unclear, however, what effect the settlement will have upon the litigation distributions contemplated by the RSA. The term sheet provides, however, that to the extent litigation proceeds received prior to the company’s effective date are sufficient to repay the DIP, the company would not issue the convertible A exit notes and term loan.
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