Cablevision Payout on Hold


Cablevision Systems Corp.’s ruling Dolan family won’t get the windfall they expected from a proposed $3 billion dividend — at least for a while.

The Bethpage, N.Y.-based cable company said plans for the payout would be postponed to avoid violating certain bank covenants.

The Dolans had proposed the dividend as a gift to Cablevision shareholders after the family pulled the plug on a $7.9 billion plan to take the cable company private in October.

After withdrawing an offer to buy the remaining shares of Cablevision stock they didn’t already own for $21 per share in cash and $12.50 per share in stock in a newly separated Rainbow Media Holdings Inc., the Dolans proposed the dividend for all shareholders.

Analysts estimated that the payout would work out to about $10.40 per share.

Given the Dolan family’s control of about 68.8 million shares of Cablevision stock, they stood to take in as much as $715 million.

Cablevision appointed an independent committee of directors to evaluate the dividend proposal, and it looked as if the deal would be done early in 2006. Cablevision priced about $1 billion in senior notes — which, coupled with a $4.5 billion bank loan, would have financed the dividend — on Dec. 13.

Six days later, the company said it had put the brakes on the dividend payout because it had found that there were certain technical covenant violations under the existing bank credit agreement of one subsidiary, CSC Holdings Inc., and certain possible technical covenant violations under other debt instruments.

“The company is in the process of and intends promptly to complete a comprehensive covenant-compliance review, seek waivers under its bank-credit agreement and, if necessary, seek waivers under its other debt instruments and consider the impact of such potential covenant violations on the classification of debt in its prior financial statements,” Cablevision said in a statement. Its board of directors decided not to proceed with the special dividend or the senior note offering.

Wall Street analysts peppered Cablevision CEO Jim Dolan and other executives on a conference call Dec. 19 about whether Cablevision would eventually issue the dividend to shareholders after the review is completed — or consider buying back stock.

Jim Dolan wouldn’t say how long the review would take, or whether Cablevision would eventually issue a dividend to shareholders. “We’re not going to put a time frame on the review,” he said. “We’re going to make sure it’s absolutely thorough. We take these manners extremely seriously. We want to have them fully resolved before we go forward on any strategic action on the company’s part.”

Cablevision CFO Michael Huseby attributed part of the problem to “human error” involving the accounting of $18 million in “vendor-type financing” earlier this year. “The problem that we found is it didn’t fit within the permissible debt-definition category,” Huseby said on the call.

Huseby emphasized that Cablevision did not expect that the issue would affect reported revenue figures or projected revenue figures.