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Charter Turns to Chapter 11

Jeff Baumgartner
3/27/2009

Charter Communications Inc. has filed for Chapter 11 bankruptcy protection as part of a restructuring plan that's expected to trim the MSO's debt by roughly $8 billion and pump in more than $3 billion for refinancing and new capital. (See Charter Files 'Pre-Arranged' Bankruptcy.)

The filing could put a bit of damper on next week's big Cable Show in Washington, where suppliers and content makers meet to drum up business for the next 12 months.

Charter, which has more than $24 billion in debt, had previously announced intentions to file the plan on or before April 1. Charter reached a deal with certain debt holders (something they're calling the "Bondholder Committee") in February. (See Charter Turns to Chapter 11 and Charter Posts Q4.)

Under the deal, the Bondholder Committee has committed to invest up to $2 billion in equity proceeds, $1.2 billion in roll-over debt, and $267 million in new debt to support the overall refinancing. Charter said it expects to have enough cash on hand and from operating activities to avoid having to seek debtor-in-possession (DIP) financing. Charter has $13.1 billion in assets, according to documents filed today in the U.S. Bankruptcy Court for the Southern District of New York.

Charter reiterated that company chairman and Microsoft Corp. (Nasdaq: MSFT) founder Paul Allen will stay on as an investor and will retain the largest voting interest in the MSO.

A get-rich-Smit scheme
The restructuring may work out well for Charter CEO Neil Smit. In preparation for the restructuring, Charter earlier this month revealed a bonus and incentive plan that could award as much as $24 million to three top executives: Smit; COO Mike Lovett; and CFO Eloise Schmitz. Components of the plan will be paid out based on whether they see the company through the restructuring process and how the company performs for a period of up to three years afterward. (See Charter Plan Could Pay Execs $24M.)

Charter is also seeking permission to maintain employee wage and benefits programs and to "honor current customer programs without interruption."

Charter did not forecast when it might wrap up the process, but Smit said he and the St. Louis-based MSO "look forward to an expeditious restructuring, and once completed, we believe that Charter will be a stronger company."

An earlier report speculated that Charter could get through the process in as little as three months.

Howdy, Doody!
Charter, meanwhile, has hired Gregory Doody as chief restructuring officer, bringing on board a guy who led the restructurings of two companies outside the cable sphere: Calpine Corp. and HealthSouth Corp. Charter has also retained Kirkland & Ellis LLP as legal counsel, Lazard Ltd. as financial adviser, and AlixPartners LLP as its restructuring adviser.

The Bondholder Committee is represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP (legal counsel), and Houlihan Lokey Howard & Zukin Capital Inc. and UBS Securities LLC (financial advisers).

— Jeff Baumgartner, Site Editor, Cable Digital News

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