Bankruptcy a reality for more media firms

Charter, Midway latest to file Chapter 11

Cable operator Charter Communications and video game publisher Midway Games on Thursday provided a Chapter 11 double-whammy for the media and entertainment industry.

Amid a high debt load, the deepening recession and a continuing credit crunch, the companies join media firm Tribune, which made a bankruptcy filing in early December, on the list of those seeking protection.

Meanwhile, Sirius XM Satellite Radio also is teetering on the brink of bankruptcy ahead of a debt repayment deadline next week.

Paul Allen's Charter will make a Chapter 11 filing by April 1. On Thursday, it unveiled an agreement-in-principle with some of its debt holders on a financial restructuring that will reduce the cable operator's debt by about $8 billion.

As part of the agreement, current chairman Allen will continue to retain the largest voting interest, if not the largest economic stake, in the company, Charter said without providing further details. Sources said he'll control a voting stake of about 35%, down from more than 90% in the past. His economic stake will be smaller.

Midway's Chapter 11 filing for its U.S. assets is the fallout from Sumner Redstone's decision to sell his majority stake in the company three months ago at a substantial loss.

Shares of both companies were in free fall Thursday as the bankruptcy process will wipe out current shareholders. Charter shares tanked 48% to less than 4 cents, while Midway shares dropped 36% to 16 cents.

The tough times are the "immediate causes" of the latest bankruptcy filings, said Hal Vogel, president of Vogel Capital Management. "But these were overleveraged companies to begin with and would have been in trouble even in the good times of three years ago."

With a majority of debtholders supporting its plan, Charter is expected to move swiftly through the bankruptcy process. Moody's credit analyst Russell Solomon said that bankruptcies historically take 12-18 months on average, but the de facto prepackaged plan outlined by the MSO should move it through the process within six months. "They will have a much more manageable debt burden" after emergence, Solomon said.

While regular Charter shareholders will get wiped out, debtholders will receive new notes, equity and cash according to their seniority. Unlike other Chapter 11 cases, Charter plans to pay trade creditors, such as vendors.

"We are pleased to have reached an agreement with such a significant portion of our bondholders on a long-term solution to improve our capital structure," Charter president and CEO Neil Smit said.



A big cable player like Time Warner Cable could come in and propose an acquisition of Charter, which a bankruptcy judge would look at as an alternative solution. However, given the tight credit markets, most give such a move an outside chance at best.

Midway said that because of a recent change in ownership, the company triggered accelerated repurchase obligations relating to two classes of debt, which the firm anticipated it would be unable to satisfy.

In November, Redstone, executive chairman of Viacom and CBS, sold his 87% stake in Midway to investor Mark Thomas. The bankruptcy may be a first step toward taking the company private and rebuilding it.

Midway said in court documents that it has $167.5 million in assets and $281 million in liabilities.

Sirius XM's shares were at less than 8 cents Thursday as investors continued to place bets on whether the company would go bankrupt or take another route.

John Malone's Liberty Media has been mentioned as a potential white knight for Sirius XM, which boasts more than 18 million subscribers, to shut out Charles Ergen's EchoStar, which has been purchasing its debt.

Sirius and XM merged last year after a 17-month battle to gain governmental approval for their marriage. The delay seems to have cost the combined company more money, time and concessions than it has been able to handle.

The sat radio firm has less than a week to figure out what to do about a $175 million debt payment due; it has another $750 million due later this year.

Collins Stewart analyst Thomas Eagan said it is "highly doubtful" that Liberty, parent of DirecTV, would purchase Sirius XM. "DirecTV certainly does not need it," he said. "Their operations lead the industry."

Liberty and EchoStar would not comment.

Georg Szalai reported from New York; Paul Bond reported from Los Angeles.
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