Charter exchanges $1.9 billion notes, convertibles; now has options for 2005, 2006 maturities

By Peter Heap

New York, Sept. 19 - Charter Communications, Inc. said it agreed to exchange a total of $1.9 billion of its senior notes and convertibles for new 10¼% notes due 2010, a transaction which, along with other recent steps, creates "a number of different options" for the upcoming 2005 and 2006 maturities of its convertibles.

Charter's CCH II subsidiary issued a total of $1.6 billion of the new notes in exchange for $609 million of convertibles and $1.3 billion principal amount of senior notes.

The exchange was completed with a number of big holders and was completed on broadly similar terms to the tender offer abandoned by the company over the summer, president and chief executive officer Carl Vogel said on a conference call.

On Aug. 15, Charter terminated its tender offer for up to $1.775 billion of convertibles and senior notes. The transaction was to have been funded from an offering of $1.7 billion of new bonds, which was also abandoned.

Speaking after the announcement of the exchange Friday, Vogel said: "We are very pleased to have completed this transaction.

"As we were on the road in August it was clear to us there was an interest in us making this type of progress.

"We are pleased to have some of this behind us. This transaction is directly related to the feedback that we received as we were out and talking to many of you that own the bonds," Vogel told the conference call, noting that the exchange was with "a handful of large holders."

"We think that we have moved the current maturities out to a reasonable point and have plenty of other available resources to handle the debt as they become due in the future

"We believe that, with the asset sales and this particular transaction and what we can do from a business point of view, we will have a number of different options to handle those convertibles as they become due."

The St. Louis broadband communications company currently has no plans for further exchanges or bond issuance.

But Vogel added: "We will continue to look at opportunistic ways to improve our capital structure as we go forward."

While emphasizing the company has no current plans for issuance, Vogel did not rule out any new offering by Charter's CCH I subsidiary - which was to have been involved in the original bond sale but was not an issuer in the exchange - in response to repeated questions from callers.

"The only thing we didn't do that we set out to do before [in the original planned bond deal] was looking at a deal that would create additional liquidity," Vogel said. "We will continue to look at that as opportunities present themselves."

Asked about why the company did not do an exchange that would delever by replacing debt with equity, Vogel said: "That's something we continue to look at and it's certainly an option we may look at in the future."

Saying he understood the market would like some deleveraging, he added: "We are going to balance the demands of the bondholder community with what we think is realistic for our shareholders."

Conceding the company paid a much higher interest rate for the new bonds than on the debt it replaced, Vogel said: "Yeah, we had to pay a lot more vis a vis the convertibles but the market was telling us those convert maturities were a problem."

Charter said the exchange allowed it to remove 44% of its convertibles. It also captured $294 million of debt discount. That discount, along with previously announced asset sales, totals $1.1 billion, "the bulk of which" will be used to reduce debt, Charter added.

The new 10¼% notes will mature 2010. They will be callable on Sept. 15, 2008 at 105 1/8, declining to par on Sept. 15, 2009.

In addition to the notes issued in the exchange, Charter sold a further $30 million for cash to cover accrued interest for the exchange.

The existing notes were exchanged at a price of around 85, with the exact level depending on the particular issue.

The terms were "fairly consistent with the ranges we discussed for the tender," Vogel said.

In the exchange, Charter acquired $609 million principal amount of its convertibles, made up to $132 million of the 5¾% notes due 2005 and $477 million of the 4¾% notes due 2006.

For the senior notes, Charter acquired a total of $698 million principal amount, made up of $149 million 8¼% notes due 2007, $256 million 8 5/8% notes due 2009, $35 million 10% notes due 2009, $26 million 10¾% notes due 2009, $60 million 9 5/8% notes due 2009, $7 million 10¼% notes due 2010 and $165 million 10% notes due 2011.

Charter also acquired $648 million principal amount or $560 million accreted amount of its senior discount notes, made up of $366 million 9.92% notes due 2011, $83 million 11¾% notes due 2010, $79 million 11¾% notes due 2011 and $120 million 12 2/8% notes due 2012.

Closing is expected on Sept. 23.

Lazard Freres & Co. LLC was financial advisor.

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