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Charter Turns to Chapter 11

Jeff Baumgartner
2/12/2009
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Charter Communications Inc. announced today it will file for prearranged Chapter 11 bankruptcy protection by April 1, a date settled on after the troubled MSO was able to strike a deal with certain debt holders. (See Charter Strikes Debt Reduction Deal.)

That debt deal, also announced today, will lighten Charter's $21 billion-plus debt load by $8 billion and set the stage for a Chapter 11 reorganization. Charter said refinancing and new capital will total $3 billion, adding that it presently has about $800 million in cash and cash equivalents on hand.

But the news for Charter's common stock holders is dim. Those suckers "will not receive any amounts on account of their common stock, which will be canceled," Charter said.

A prearranged bankruptcy has been speculated on for months, bubbling to the surface again last month when the MSO announced it would miss a $73.7 million interest payment and disclosed elements of a new compensation plan for some of its top executives. (See Tracking Charter and Charter Misses Interest Payment.) Today, Charter said it would make that interest payment by the allotted grace period.

Before that, Charter hired Lazard LLC to discuss "financial alternatives" with MSO bondholders. (See Charter Seeking 'Financial Alternatives' .)

Even with the coming Chapter 11 filing and subsequent reorganization, Charter said it expects services and operations to continue unchanged.

“We are committed to continuing to provide our 5.5 million customers with quality cable, Internet and phone service, and through this agreement, we will be even better positioned to deliver the products and services our customers demand now and in the future," Charter president and CEO Neil Smit said, in a release. "Moreover, the interest and support provided by our stakeholders with their new capital investment underscores their confidence in Charter and our business.”

Under the deal with debt holders, Charter chairman and Microsoft Corp. (Nasdaq: MSFT) billionaire co-founder Paul Allen will remain as an investor and retain the largest voting position in the MSO, which serves 5.5 million subscribers and is the nation's fourth-largest cable operator.

Based on recent cable history, Charter has a chance to get its debt mess straightened out and come out smelling perhaps not as a rose, but at least with a less stinky balance sheet. RCN Corp. filed a similar, voluntary bankruptcy in May 2004 and completed the restructuring by the end of that year, though that deal was done during a better economic environment. More recently, smaller MSO Broadstripe LLC filed for Chapter 11 protection in January in the hopes that it can iron out its own debt issues. (See Broadstripe Turns to Chapter 11 .)

Although Charter is on the way to bankruptcy, areas of its operations continue to improve. In a separate announcement, the MSO said it expects to post fourth-quarter revenues of $1.65 billion, up 6.6 percent year-over year. Despite losing 75,100 basic video subs in the period, it added 22,300 digital video subs, 22,900 cable modem customers, and 75,200 telephone customers. (See Charter Posts Q4.)

— Jeff Baumgartner, Site Editor, Cable Digital News

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