Charter Moving Closer to Restructuring?

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Charter Communications, which said last month that it would seek to negotiate a restructuring of its balance sheet with bondholders, made further steps in that direction Wednesday, eliminating its executive cash award plan and making changes to its other bonus compensation programs.

Charter said in December that it had asked its financial adviser Lazard LLC to initiate discussions with its bondholders regarding a possible restructuring of its debt. That prompted debt rating agency Moody’s Investor’s Service to lower its probability of default rating on the St. Louis-based MSO, predicting that the cable operator could be planning a pre-packaged Chapter 11 bankruptcy to ease its debt burden.

“I think this is another indication that they are possibly headed toward a prepackaged bankruptcy,” Miller Tabak media analyst David Joyce said. “Changing the various financial incentives for senior executives clearly looks like they are trying to retain them, but also trying to incent them to increase enterprise value. All of these little changes going on behind the scenes just add up to them filing some sort of pre-packaged bankruptcy or restructuring of some sort.”

Joyce added that while Charter’s heavy debt has been an issue for years – it is the most highly leveraged cable operator in the country – a restructuring isn’t an absolute necessity for the company. Joyce said that Charter’s next big maturity is a $1.9 billion payment due in September 2010. The MSO had about $1.6 billion in available lines of credit in the third quarter, which Joyce estimated along with consistent cash flow and revenue growth would fund Charter through at least the fourth quarter of 2010. 

“These nervous credit markets are looking at a maturity that is still 18 months away,” Joyce said.

Charter said in a filing with the Securities and Exchange Commission Wednesday that it had eliminated its Executive Cash Award Plan and as a result made cash awards to several top executives whose interests in the plan were scheduled to vest on Dec. 31, 2009. According to the filing, CEO Neil Smit received $1.2 million, chief operating officer Mike Lovett received $1.2 million, executive vice president and general counsel Grier Raclin received $473,452 and chief financial officer Eloise Schmitz received $386,330. The filing added that the money would have to be returned if any of the executives left the company prior to Dec. 31.

In addition, Charter said its board of directors approved changes in its executive bonus plan – executives now will be able to receive up to 10% of their performance bonus once they attain 90% of their performance metrics, capped at 150% at 105% attainment. Also, Charter said its board approved a restructuring value bonus plan for executives, intended to provide an incentive for management to maximize the enterprise value of the company during its discussions with bondholders. The RVP awards could be as much as three to four times an executive’s base salary plus target bonus, payable in three installments – one-third during upon the consummation of a restructuring, one-third six months after the consummation and one-third 12 months after. Those payments would take the place of any long-term inceptive plan payments, or any discretionary equity or cash payment awards for the executives.


In an unrelated move, Charter has divested systems serving 14,200 basic video customers in Minnesota to 

Midcontinent Communications. 


RBC Daniels acted as the exclusive financial advisor to the transaction, terms of which were not dislcosed, 

which covered subscribers in Fairmont, Bemidji, International Falls, Ely, Glencoe, Canby, Balaton and other communities in Minnesota.

Charter’s stock was down 9.6% (one cent per share) to 12 cents each in early trading Wednesday.

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