Charter Chief Laments Slide, Lauds Progress

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Charter Communications Inc. president Jerald Kent expressed disappointment in the performance of the company's stock at its first annual meeting last week, but he reassured investors that the company is making strong progress in realizing its "Wired World" strategy.

Charter's stock has been hammered since the company went public in November, losing about 37 percent of its value from its initial pubic offering price.

Charter went public at $19 each Nov. 9, raising $3.7 billion in the fourth-largest IPO in U.S. history. Lately, it has traded in the $12-per-share range. The stock closed at $12.69 June 7, down 25 cents.

"I share your disappointment in our stock's performance to date," Kent told the audience at the meeting, which was held in Bellevue, Wash., hometown of Charter's chairman and largest shareholder, Paul Allen.

"The general market conditions have contributed to the malaise in cable stocks," he added. "Year-to-date through May, the average cable stock is down 37 percent, with recent IPOs being impacted the most."

He continued: "Since last June, there have been four cable initial public offerings with an average drop of 54 percent in their price. Charter's IPO has performed at the industry average, declining 37 percent year-to-date. As we continue to meet or exceed our financial goals, I am optimistic that it will result in a premium valuation of Charter in the marketplace."

Kent pointed to Charter's increased cash-flow and revenue growth in the past year-10.6 percent and 6.8 percent, respectively-as well as to rapid growth in customers taking advanced services.

The MSO's digital-cable subscriber count rose to 225,000 in the first quarter, up from about 175,000 in the fourth quarter, and high-speed-data customers grew to 123,000 from 84,000. The company also began rolling out a video-on-demand service in Georgia with Diva Systems Corp., and it should expand that to Los Angeles within the next few months.

Charter is carrying a heavy debt load-$6.8 billion in bank debt and $5 billion in high-yield debt. Kent said the company is working toward reducing debt, and it is making progress.

"When we first did our high-yield road show [last year], we indicated that our goal was to reduce our debt-to-cash-flow ratio to under eight times, and the goal over the next five years is to reduce it to five times," Kent said. "That would make our debt investment-grade and would give us significant benefits in terms of interest rates. We are still on target to meet that objective."

Kent said a plan to further reduce debt through an offering of convertible preferred stock is on hold pending an increase in the company's stock price.

"Clearly, where our stock is today, we are not going to go out with a strike price that is under our IPO price," Kent said. "As market conditions improve, we will be able to issue preferred stock and reduce our indebtedness."

Still, Charter has more than enough money to continue its aggressive upgrade plans and to roll out new services. Kent said the company recently secured a commitment from investment bank Morgan Stanley Dean Witter & Co. for $1 billion that will fund the company well into 2001, even with accelerated capital spending.

Upgrade plans include making more than 70 percent of Charter systems 550 megahertz or greater by the end of the year, he added, with the vast majority of systems at 750-MHz capacity.

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