Charter Proposes Debt Offering

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Charter Communications is proposing to exchange about $309 million in convertible senior notes for higher interest debt that stretches out maturity dates for the company for about 20 years.

In a statement, Charter said it has proposed exchanging $309 million in 5.875% convertible notes due 2009 for $595 million in 7% convertible senior notes due 2027.

At least one analyst cheered the exchange offer, noting that the deal would remove one of the last remaining short-term debt issues for Charter.

With $19.6 billion in debt, Charter is the most highly-leveraged cable company in the industry. The company has made significant moves in the past two years to reduce debt, extend maturities and provide it with additional liquidity to fund the rollout of new services, especially telephony.

The move comes just weeks after chairman Paul Allen revealed in a Securities and Exchange Commission filing that he was considering several options for the St. Louis-based cable operator, including taking it private.

In a research note, Citigroup analyst Jason Bazinet wrote that the 2009 convertible note makes up the bulk of Charter’s near-term debt maturities and that if the offering is successful, it would likely give Charter ample liquidity through 2010.

Although Bazinet wrote that the new notes would increase Charter’s debt by $286 million and its cash interest obligations by $23 million, he sees that as a minor issue.

“The bigger implication of a successful tender offer is the mitigation of near-term maturities,” Bazinet wrote.

Miller Tabak media analyst David Joyce agreed that the offer would extend maturities, but added that he did not understand the rationale behind the offering – it would increase debt and interest payments but provide no additional cash. However, he wrote in a research note that the deal “could perhaps mitigate a worse conversion or more desperate funding situation in the future.”

Charter stock was up 7 cents each in afternoon trading Wednesday, to $2.69 per share.

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