Story goes to Chapter 11 for biz stalwarts
EmptyCable operator Charter Communications and video game publisher Midway Games on Thursday provided a Chapter 11 double-whammy for the media and entertainment industry.
Amid high debt loads, the deepening recession and a continuing credit crunch, the companies join media firm Tribune, which made a bankruptcy filing in 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 big 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, and Midway shares dropped 36% to 16 cents.
Tough times are the "immediate causes" of the latest bankruptcy filings, said Hal Vogel, president of Vogel Capital Management. "But (Comcast and Midway) 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.
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 knew 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. 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.
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.
Georg Szalai reported from New York; Paul Bond reported from Los Angeles.