Charter Communications and its subsidiaries announced Thursday that they have reached an agreement-in-principle with some debt holders on the terms of a financial restructuring that will involve a prearranged Chapter 11 bankruptcy filing by April 1.
A Chapter 11 bankruptcy is a reorganization, as opposed to a Chapter 7, which is a liquidation. That means Charter will continue operating with the goal of eventually emerging from bankruptcy.
In a prearranged bankruptcy, a company enters into reorganization with a plan to emerge that has the approval of major stakeholders.
UW-Madison Prof. Jim Seward, who teaches a Corporate Restructuring class in the Business School, said in an e-mail that a "pre-packaged" bankruptcy is designed to complete a reorganization in very fast order.
"There are various technical sorts of reasons why this makes sense for companies, but generally this approached is used when the company is seeking to gain creditor concessions in a congenial way, and typically there are very few (if any) repercussions for customers at all," Seward said. "This is a relatively low cost, established way of completing a distressed reorganization, so I would not expect that customers would feel any negative impact whatsoever. Indeed, they as customers are unlikely to even be aware that the company has filed bankruptcy."
The restructuring will reduce its debt, which was more than $21 billion, by $8 billion, Charter said in a news release.
The debt holders will receive combinations of new debt, cash, common shares, warrants to buy stock and preferred shares.
Charter said chairman and majority shareholder Paul Allen will retain voting control of the St. Louis-based company, which is the dominant subscription TV provider in the Madison area.
But Charter's common stock will be canceled, meaning shareholder stakes will be wiped out. Allen has invested more than $7 billion in the company.
The agreement has subsidiaries CCH I Holdings LLC and Charter Communications Holdings LLC making about $74 million in interest payments on some of the debt due Jan. 15 within the 30-day grace period that had been granted.
About $1.9 billion of debt comes due next year. Overall, more than half of Charter's $21 billion in total borrowings will mature by 2013.
As of Wednesday, Charter said it had about $800 million in cash and cash equivalents available to it.
Charter said it believes its liquidity, combined with its cash from operating activities, will be sufficient to meet its projected cash needs, including the payment of normal operating costs and expenses, as it proceeds with the restructuring.
"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," President and CEO Neil Smit said in a statement. "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. Moreover, the interest and support provided by our stakeholders with their new capital investment underscores their confidence in Charter and our business."
Charter said the agreement-in-principle is subject to numerous closing conditions, and there is no assurance that the treatment of creditors outlined above will not change significantly.
The company said the purpose of the restructuring is to strengthen its balance sheet in order to fully support the company's operations and service its debt. As such, the agreement-in-principle contemplates paying trade creditors in full.
Charter also reported Thursday that its fourth-quarter revenues are expected to increase by 6.6 percent to $1.66 billion, with adjusted earnings before interest, taxes, depreciation and amortization up nearly 10 percent to $620 million.
Although Charter'ss operations are profitable, huge interest payments have kept it from turning a profit since it went public in 1999.
A Chapter 11 bankruptcy is a reorganization, as opposed to a Chapter 7, which is a liquidation. That means Charter will continue operating with the goal of eventually emerging from bankruptcy.
In a prearranged bankruptcy, a company enters into reorganization with a plan to emerge that has the approval of major stakeholders.
UW-Madison Prof. Jim Seward, who teaches a Corporate Restructuring class in the Business School, said in an e-mail that a "pre-packaged" bankruptcy is designed to complete a reorganization in very fast order.
"There are various technical sorts of reasons why this makes sense for companies, but generally this approached is used when the company is seeking to gain creditor concessions in a congenial way, and typically there are very few (if any) repercussions for customers at all," Seward said. "This is a relatively low cost, established way of completing a distressed reorganization, so I would not expect that customers would feel any negative impact whatsoever. Indeed, they as customers are unlikely to even be aware that the company has filed bankruptcy."
The restructuring will reduce its debt, which was more than $21 billion, by $8 billion, Charter said in a news release.
The debt holders will receive combinations of new debt, cash, common shares, warrants to buy stock and preferred shares.
Charter said chairman and majority shareholder Paul Allen will retain voting control of the St. Louis-based company, which is the dominant subscription TV provider in the Madison area.
But Charter's common stock will be canceled, meaning shareholder stakes will be wiped out. Allen has invested more than $7 billion in the company.
The agreement has subsidiaries CCH I Holdings LLC and Charter Communications Holdings LLC making about $74 million in interest payments on some of the debt due Jan. 15 within the 30-day grace period that had been granted.
About $1.9 billion of debt comes due next year. Overall, more than half of Charter's $21 billion in total borrowings will mature by 2013.
As of Wednesday, Charter said it had about $800 million in cash and cash equivalents available to it.
Charter said it believes its liquidity, combined with its cash from operating activities, will be sufficient to meet its projected cash needs, including the payment of normal operating costs and expenses, as it proceeds with the restructuring.
"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," President and CEO Neil Smit said in a statement. "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. Moreover, the interest and support provided by our stakeholders with their new capital investment underscores their confidence in Charter and our business."
Charter said the agreement-in-principle is subject to numerous closing conditions, and there is no assurance that the treatment of creditors outlined above will not change significantly.
The company said the purpose of the restructuring is to strengthen its balance sheet in order to fully support the company's operations and service its debt. As such, the agreement-in-principle contemplates paying trade creditors in full.
Charter also reported Thursday that its fourth-quarter revenues are expected to increase by 6.6 percent to $1.66 billion, with adjusted earnings before interest, taxes, depreciation and amortization up nearly 10 percent to $620 million.
Although Charter'ss operations are profitable, huge interest payments have kept it from turning a profit since it went public in 1999.
