Charter Floats $8.4B Refi Plan


Charter Communications Inc. is planning a new $8.4 billion private-placement refinancing, essentially pushing back the maturities on many of its bonds to 2014 and 2015 and enabling the No. 4 MSO to shed about $1.5 billion in debt.

The move, announced on Aug. 24, is the latest in a series of maturity extensions the fourth-biggest U.S. MSO has done over the years. While it does not wipe out the debt, it gives Charter some financial flexibility.

Charter is offering to exchange the debt at discounts, and is offering a $50 payment for bondholders who tender early. The deadline for tendering the bonds is Sept. 9 at 5 p.m.

“Consistent with our opportunistic approach to improving the balance sheet, the purpose of the exchange is to increase our financial flexibility by extending debt and reducing indebtedness by capturing discount,” Charter spokesman David Andersen said in a statement.


According to UBS Warburg cable debt and equity analyst Aryeh Bourkoff, Charter holders who tender their bonds would shoulder a 15% discount.

While the new offerings would erase about $1.5 billion in debt, Charter still has a long way to go. With about $19.2 billion in debt, Charter is leveraged about 9.3 times 2005 estimated cash flow. Other large cable operators’ leverage averages between three times and five times 2005 cash flow.

The new debt offering would lower Charter’s leverage ratio to about 8.4 times, according to Bourkoff.

“While a welcome step to enhanced liquidity, Charter faces a meaningful free-cash-flow deficit and sector-high leverage, though improved optionality,” Bourkoff wrote in a research note.

According to a press release the offerings will be made by two Charter subsidiaries: CCH I is offering $3.525 billion in 11% senior notes due 2015 in exchange for older notes due in 2009 and 2010 and CCH I Holdings is offering $4.262 billion in senior notes due 2014 and 2015 in exchange for various older notes due in 2011 and 2012.

Investors were pleased with the announcement, driving Charter stock up 41% (47 cents per share) to $1.62 each in 4 p.m. trading last Wednesday.

News of the debt refinancing came a day after Charter held its annual meeting of shareholders in Seattle on Aug. 23. It was the first annual meeting for new Charter CEO Neil Smit (his second day on the job) and for the most part, shareholders kept any dissent under their hats.

Smit, who began as Charter CEO on Aug. 22, said he took the job because of his belief in the enormous potential of the industry. He said his first priority would be to go out into the field seeking feedback from employees, customers and shareholders on Charter’s customer-service initiatives and its new products.

“I believe that the way to succeed in a consumer-facing industry like ours is to ensure that we offer the best customer experience in combination with a compelling value proposition,” Smit said. “In my previous roles at AOL and other companies, I have successfully overseen initiatives in retention marketing, customer service, new revenue and renewal and payment marketing.

“The teams I led leveraged the company’s products and services to extend the lifetime value of our customers. By implementing similar initiatives here at Charter, I am confident we can improve the fundamentals and achieve top-line growth.”

Smit added that the search to fill other top executives — a chief financial officer, general counsel and a newly created position, chief marketing officer — are continuing and should be completed “sooner rather than later.”

Charter chairman Paul Allen pointed to the success of the MSO’s digital-simulcast rollout in Long Beach, Calif., St. Louis and Madison, Wis.; adding that additional markets will be added. He declined to identify them.


Allen was also high on Charter’s voice telephony rollout — in St. Louis, Madison, Massachusetts and South Carolina — adding that the service is currently available to 2.2 million customers. Charter plans to make the service available to between 6 million and 8 million homes by the end of 2006.

Charter currently has about 68,000 voice customers, including some circuit-switched telephone customers the MSO inherited when it acquired the St. Louis system from AT&T Broadband.

Analysts and investors have said repeatedly over the past few years that Charter’s debt problems could be solved by an equity infusion by Allen, the company’ largest shareholder. While Allen gave no indication he would do that, asked by a shareholder whether he was in Charter for the long haul, Allen responded: “My commitment to the company has not changed.”