Sinclair Broadcast Group paid JPMorgan Chase $190.2 million dollars Friday to cash out the investment bank from its preferred equity in troubled Diamond Sports, according to a Securities & Exchange Commission filing. The purchase came just days ahead of Diamond electing not to pay $140 million in debt service.
JPMorgan held the units as part of the deal that financed Sinclair’s purchase of Walt Disney’s regional sports networks in 2019. In that transaction, Sinclair paid Disney $9.6 billion to buy 21 Fox regional sports networks and Fox College Sports, which Disney had to divest itself from as part of antitrust clearance for its acquisition of 21st Century Fox film and television assets.
As part of Sinclair’s purchase, JPMorgan contributed $1.025 billion in exchange for preferred units of Diamond Sports. Sinclair held the option to redeem the units at will, and Friday’s deal means Sinclair has redeemed all the preferred units. Units paid a 12% annual dividend, a rate that was due to go up another half-percentage point, according to Sinclair.
With the 2019 issuance of the preferred units, Sinclair guaranteed that the investment bank would be paid back, according to a JPMorgan spokesperson. The “guaranty of collection” specified that Sinclair Broadcast Group itself, and not Diamond Sports Holdings, was responsible for paying the value of the preferred units. The $190.2 million payment to JPMorgan represents 95% of the value of the preferred units, according to the SEC filing by Sinclair. (The units had a face value of $175 million and had $25 million in accrued dividends.)
According to SEC filings describing the deal in 2019, JPMorgan was guaranteed full payment in the event of a Chapter 11 bankruptcy, which is near-certain for Diamond. However, the payment didn’t have to occur until the day after a Chapter 11 reorganization was completed. In effect, it appears JPMorgan took a slight haircut on the units now to avoid the uncertainty of the payment timing in the future. A Sinclair spokesperson didn’t immediately respond to a request to comment on the redemption’s timing.
Diamond has nearly $9 billion of debt on its books; that debt is held only against the Sinclair subsidiary, despite the publicly traded broadcaster owning more than 90% of Diamond’s equity. In December, Diamond voted to block Sinclair from management of the business. Sinclair has essentially written off its Diamond investment, changing its financial accounting for the RSN business as a simple equity investment last year.