One of the leading cable companies in the US, Charter Communications, has come out of Chapter XI bankruptcy, having shed $8 billion of debt, around 40% of the total, and says it will be cash positive almost immediately.
Throughout the late 90s we constantly warned that almost all of the major US cable operators were too heavily burdened with debt and unable to survive any kind of downturn in their subscriber figures.
And yet leading Charter shareholder, Microsoft co-founder Paul Allen, will remain just that, its largest shareholder. The details of just who owns what in terms of new debt seniority and shareholding are unclear, but this was what we call a pre-pack ‘ like an administration, pre-agreed and packaged to take a company in and out of bankruptcy with all the voting power to push it through already in place prior to the declaration of bankruptcy.
‘This successful financial restructuring is a significant accomplishment and makes Charter a stronger company for the benefit of our customers, vendors, employees and the communities we serve,’ said Neil Smit, President and Chief Executive Officer. ‘We have restructured our balance sheet without losing sight of serving our customers and maintaining our business relationships. Charter will remain focused on further enhancing the customer experience and is positioned to generate free cash flow. On behalf of the management team, I would like to thank the more than 16,000 Charter employees across the country for their hard work and dedication throughout this process.’
Charter submitted a pre-arranged Joint Plan of Reorganization to the US Bankruptcy Court for the Southern District of New York on November 17, 2009, having worked it out in principle back in March and says it is now positioned to generate positive free cash flow through the reduction of more than $830 million in annual interest payments.
It entered bankruptcy with $21 billion in debt and will exit it with just under 12 billion in long term debt, meanwhile some $1.7 billion of debt has been extended with new redemption dates way out in 2016. The company has over $1 billion in cash to operate with after receiving $1.6 billion from an equity rights offering.
This is a classic debt for equity swap and many of the existing shares in the company have been cancelled, which is why we are surprised that Allen remains such a dominant shareholder. The company hopes to go back on the NASDAQ Stock Market in around 45 days.
Earlier in the month Charter reported financial results for the September 30 quarter with revenues of $1.7 billion up 3.5%, driven by increases in fixed phone and internet additions, with ARPU up 8.2% year on year to $115.26 per month due to its new bundling approach, video ARPU was $61.49.
Charter says it has 12.6 million RGUs (customer contracts for separate services) and around 56% of its customers subscribe to a bundle, and that it has 14.5% of its customer’s phone business.
Charter reported a $2.6 billion loss from operations in the third quarter of 2009, and a net loss of $1.035 billion compared to a loss last time of $322 million. However this came after a $2.9 billion non-cash impairment for Goodwill re-alignment.