Following the conclusion of Labor Day Weekend, Diamond Sports Group will present its new go-forward deals with the National Basketball Association and National Hockey League to a bankruptcy judge on Tuesday, Sept. 3. The approval of these deals would ensure that Diamond will broadcast games for teams in those leagues within its portfolio through the 2024-25 seasons.
Part of the deal with the NBA involves dropping the Dallas Mavericks and New Orleans Pelicans after both teams requested termination of the agreements. The Debtors determined that these deals could not be made profitable and should be rejected, acceding to the request. If the deals remain intact, the company will have 13 NBA teams and nine NHL teams for which it will air local broadcasts. At the same time, Diamond will seek entry of an order amending the final debtor-in-possession order, seeking to ultimately enter a restructuring support plan and emerge from Ch. 11 bankruptcy.
Diamond was supposed to have a confirmation hearing in mid-June to review its plan and determine if it would be able to exit Ch. 11 bankruptcy, a state it has been in for over a year. Yet those plans changed since coming to terms on a carriage agreement with Comcast after its networks were removed from the company’s cable plans for three months. Although there is not presently a date for a confirmation hearing, the process is expected to move into the upcoming NBA and NHL seasons that begin in October. Within an emergency motion filed to the bankruptcy court last week, Diamond emphasized that its Debtors need to address other matters in attempting to complete business and reorganization plans.
One of these facets includes finalizing a new naming rights agreement, which was reported by Bloomberg earlier in the summer to be with FanDuel Corporation. The existing naming rights agreement with Bally’s Corporation will expire at the conclusion of the 2024 MLB season. In addition to that, the Debtors will also need to raise additional capital through a new accounts receivable financing facility while also altering their projections based on the outcomes of negotiations.
Within the motion, it is stated that the Debtors, DIP lenders and first lien lenders reached an agreement on amendments to the existing DIP order that gives “the Debtors additional time to pursue a reorganization plan.” Aside from the NBA and NHL go-forward agreements, the amendments are also said to provide first lien lenders “with greater certainty around repayment in full in cash up to agreed-upon claims caps.” Under the amended terms, first lien claims would be capped at $637 million if the business entered a “wind down scenario” and $647 million if it were to reorganize.
After this emergency motion was filed, Tom Friend of Sports Business Journal reported that Amazon had pulled its $115 million funding offer that would have provided the company with the local streaming rights for NBA teams in the Diamond oeuvre. Part of the agreement would have been used to pay back some of the $450 million Diamond would receive in debtor-in-possession financing, but Diamond is still said to have enough financing to present a restructuring plan.
An additional First Lien Paydown that was agreed upon after an extended timeline within the Ch. 11 cases and differing projections from the Debtors as compared to what “formed the basis of the RSA and the first lien lenders’ agreement to accept take back debt.” Prior to this agreement, the first lien lenders informed Debtors “that they would not accept take back term loans as a form of recovery for their remaining first lien claims.”
In order to safeguard against diverting cash from the additional paydown, the Debtors are looking for authority to use proceeds from its settlement with Sinclair “to make the Additional First Lien Paydown and pay the Centerview Transaction Fee.” Diamond received a cash payment of $495 million from its parent company earlier in the process in exchange for dropping all litigation against Sinclair and other defendants that totaled $1.5 billion. Additionally, the agreement calls for Diamond to receive services to allow it to become its own “self-standing entity going forward.”
“Pursuant to the terms of the agreement among the parties, if the Debtors (a) continue to pursue a going concern reorganization and have not pivoted to a winddown by October 1, 2024, and (b) have failed to consummate an Acceptable Plan by November 15, 2024, then the Debtors will make the Additional First Lien Paydown to the first lien lenders on November 18, 2024,” Zul Jamal, managing director of Moelis & Company, the investment banker for the Debtors, wrote within a declaration of support.
“The Additional First Lien Paydown will equal an amount that would provide the first lien lenders with an aggregate cash recovery equal to the $637 million winddown claims cap contemplated under the Existing DIP order (after taking into account the initial First Lien Paydown made upon the closing of the DIP Facility and the crediting of adequate protection payments in accordance with the DIP Amendment Order), with the estimated payment equaling approximately $215 million.”
If the Debtors end up pivoting to a winddown scenario following the Pivot Deadline, which is set for Oct. 1, 2024 “or such later date as agreed to in writing by the Majority 1L Lenders,” first lien lenders would be entitled to payment of the aforementioned Additional Cash Paydown. The Debtors have also agreed to “the crediting of adequate protection payments to the principal outstanding on the first lien claims” under certain provisions because of the length of the case.
