Charter teetering toward Chapter 11


Is Paul Allen's foray into cable television coming to an end? Wall Street increasingly is banking on developments that could see him lose his Charter Communications roles as controlling shareholder, which he has held for more than 10 years, and chairman.

With a Sunday deadline looming, the cable operator has been mum on whether its talks with debtholders are likely to yield a result other than a Chapter 11 bankruptcy filing. Allen and Charter are represented by different legal and financial advisers in these talks.

Pali Research analyst Richard Greenfield expects such a filing. "This will come as a surprise to no one," he said. Moody's credit analyst Russell Solomon said a bankruptcy filing "is looking increasingly likely."

In such a case, stockholders, including Allen, would have to yield to creditors who would take control of the process. "We wouldn't expect (Allen) to have a role going forward," Solomon said.

Asked about the likelihood of a Chapter 11 filing, a Charter spokeswoman said: "We don't comment on what others say. However, I can tell you that our plan is to stay the course in terms of executing on our operating plan. The discussion with our bondholders is about our balance sheet, not our operations."

Charter has refinanced and extended its maturities every year since 2004.

But just before Christmas, Charter said it asked longtime financial adviser Lazard to start talks with bondholders to boost its financial flexibility. And last month, two Charter subsidiaries did not make scheduled interest payments worth $73.7 million on some of its debt. The firm has the right to make the interest payments within a grace period that runs through Sunday. If it doesn't make them by then, it will be considered to have defaulted on its obligations.

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 Sept. 30.

Charter could strike a debt-restructuring deal with its creditors, which would roll over its debt into new debt that would come due later at changed terms. It also could swap debt for equity, meaning that debtholders could get stakes in Charter in return for cancellation of the debt, which again would reduce the influence of stockholders, such as Allen, who has sunk billions of dollars into Charter.

Solomon said that given the company's complex debt structure, letting the courts work through the issue may be the best way to go.

Another option for Charter could be to negotiate a so-called "prepackaged" bankruptcy with its bondholders — a cheaper and quicker way to clear the process. In it, major creditors vote on details of a bankruptcy plan before it's filed with the court.