Are Changes Coming?—

Charter Communications To File Chapter 11

By John Voket

Struggling Charter Communications Inc., the nation's fourth largest cable operator, confirmed widespread suspicions Thursday that it plans to file a prearranged Chapter 11 bankruptcy by April 1.

Charter, which is controlled by Microsoft Corp. co-founder Paul Allen, said it has reached an agreement in principle with holders of $8 billion in debt who will give up repayment of their debt, the Associated Press reported. In return, they will receive common shares, or warrants for rights to get common shares, that translate to nearly owning the entire company after bankruptcy.

Mr Allen will remain as an investor and retain the largest voting interest in Charter. While his 51 percent stake in the company will be wiped out, along with those of other shareholders as the stock is canceled, Mr Allen was given voting control by debt holders.

He also holds some debt, which will be converted, and preferred stock.

In a prearranged bankruptcy, a company enters into reorganization with a plan to emerge that has the approval of major stakeholders. The rest of the creditors will be dealt with through bankruptcy court. In a prepackaged bankruptcy, each creditor has voted on the plan before the filing.

Charter said it plans to pay what it owes to suppliers and other trade creditors in full and go about the normal course of business.

While newswires went viral with speculations about the impending bankruptcy filing earlier Thursday, installation vehicles and customers paying their monthly bills came and went at Newtown’s Charter Communications office on Commerce Road.

As The Newtown Bee’s Business Page of went to press February 11, even The Hollywood Reporter was weighing in on the situation, suggesting the company’s billionaire founder’s tenure as chairman and controlling shareholder was tenuous.

In January, two Charter subsidiaries did not make scheduled interest payments worth $73.7 million on some of its debt. The firm had until a payment grace period ran out Sunday, February 15 to make the interest payments.

An analyst for Moody’s Investors Service, which rates Charter and coincidentally also rates Newtown’s municipal creditworthiness, said earlier this week that given the company’s complex debt structure, letting the courts work through the issue may be the best way to go.

That statement was followed up Wednesday afternoon with Moody’s unceremoniously cutting Charter’s corporate family rating two notches to “Caa3,” nine steps below investment grade citing the expectation that the company faces an imminent bankruptcy.

Three Options Possible

According to The Reporter article, the St Louis-based firm has long been the most indebted major cable firm, with net debt of slightly more than $21 billion as of September 30.

The AP reported recently that Charter has skirted insolvency for years, but this time it faced a brutal combination of tight credit and billions of debt coming due. Charter itself acknowledged in a Securities and Exchange Commission filing that if it could not refinance its debt, bankruptcy protection might become its only option.

In Charter’s corporate home town, the St Louis Business Journal reported February 10 that the communications giant hired attorney and turnaround expert Gregory Doody in another sign that the cable giant was considering restructuring.

According to that report, Mr Doody had previously helped turn around Calpine Corp, a San Jose, Calif.-based energy company, as executive vice president, general counsel and secretary. Before that, he worked as executive vice president, general counsel and secretary at Birmingham, Ala.-based HealthSouth Corp, one of the nation’s largest providers of outpatient surgery, diagnostic imaging, and rehabilitative services.

HealthSouth President and CEO Jay Grinney credited Mr Doody with helping the company redirect its focus in the wake of a multibillion-dollar corporate accounting fraud perpetrated under prior management.

Internet Caps Imposed

In other news, Charter’s Eric Ketzer told DSLReprts.com, this week that the company’s new, $140 60Mbps broadband Internet service tier will not impose any user limitations. But those subscribing to service providing speeds of 15Mbps or slower will have a 100GB monthly cap, while 15–25Mbps speeds will have a 250GB monthly cap.

“In order to continue providing the best possible experience for our Internet customers, later this month we will be updating our Acceptable Use Policy to establish monthly residential bandwidth consumption thresholds,” Mr Ketzer said in the report. “More than 99 percent of our customers will not be affected by our updated policy, as they consume far less bandwidth than the threshold allows.”

At the end of January, the company also announced it will be offering 60Mbps/5Mbps service in the St Louis area, for somewhere around $139.99 ($129.99 bundled). The 60Mbps number was a very particular marketing choice, given it is 10Mbps faster than both Comcast and Verizon’s fastest offerings.

Closer to home, a company spokesperson said call center work being consolidated from Bay City, Mich., to Newtown will not create any more jobs locally. The representative said technological advances will permit the same number of employees currently working in the Newtown center to accommodate all the work that was concurrently being handled in the Bay City facility.