Charter Communications said early Friday that it has asked its long-time financial adviser Lazard LLC to initiate discussions with Charter bondholders concerning financial alternatives to improve the St. Louis-based MSO’s balance sheet.
Charter has the highest leverage ratio in the cable industry – about 9 times forward-looking cash flow – and has total outstanding debt of about $20 billion.
“We believe engaging in discussions with our bondholders, aimed at improving our capital structure and enhancing our financial flexibility, is in the Company's and our customers' best interests,” said Charter CEO Neil Smit in a statement. “In the third quarter 2008, revenues increased 7.3%, and net customer additions increased more than 50% year over year. Our objective in these discussions is to improve our balance sheet, which will better position Charter for the future, while we continue to focus on delivering quality service to our customers and growing our business.”
Charter noted that its cash on hand and cash equivalents as of Dec. 10, was in excess of $900 million, which is available to pay operating costs and expenses.
Miller Tabak analyst David Joyce said in an e-mail that he was surprised initially with how much cash the company had drawn down on its credit facility in the third quarter -- $569 million as of Sept. 30, compared to just $76 million the second quarter and $480 million in the first quarter.
“With a rear-view mirror, we now see that they were preparing to go through some form of leverage discussions and, beyond the credit crunch issues that would have made them nervous about their line still being available, if they were planning to renegotiate terms, maturities, etc., their future withdrawals could have been temporarily hindered,” Joyce wrote.
The analyst added that while asset sales or swaps are a possibility, “the balance sheet benefits would be too distant to satisfy the concerns over the $1.9 billion of maturities due in Sept. 2010.”