Charter Communications says liquidity "good" through this year - but next year is a question mark

By Paul Deckelman

New York, May 3 - Charter Communications Inc. has ample liquidity - for now. But the debt-laden St. Louis-based cable operator acknowledged Tuesday that beyond this year things are still up in the air.

"Very consistent with the disclosures in our year-end filings, we have liquidity good through 2005," the company's interim chief financial officer, Paul Martin, declared on a conference call following the release of Charter's 2005 first-quarter numbers.

However, he added that, "as we said [in the filings], liquidity may not be sufficient for 2006. We are very mindful, and are continuing to work on balance sheet-related issues, and will continue to do so as we go forward."

Martin said that at the end of the first quarter on March 31, Charter had $18.9 billion of debt, $1.2 billion of bank credit availability and $32 million in cash. By way of contrast, as of the end of the 2004 fourth quarter on Dec. 31, the company had $19.5 billion of debt on its balance sheets, $650 million of cash and cash equivalents, and $804 million of bank availability.

During the quarter, he said, Charter had taken some steps to pare down its debt, and to extend its maturities, including the mandatory redemption of $113 million of 11 7/8% senior discount notes due 2008 issued by the former Avalon Cable LLC (which, following its acquisition several years ago by Charter, has since been known as CC V Holdings, LLC). The bonds were redeemed on March 14 at a price of 103.958% of their principal amount, plus accrued and unpaid interest up to the redemption date, using some of the proceeds from its revolving credit facility.

A company spokesman told Prospect News that under the conditions of the credit facility which Charter entered into in April of last year, the company was obligated to redeem the Avalon bonds when the leverage ratio of its Charter Communications Holdings unit - the issuer of record for the majority of Charter's-high yield debt - got down to 8.75 times EBITDA, as it did with the fourth-quarter results. The spokesman said there were no other impending bond repurchases of other Charter notes like the Avalon buyback that might be triggered by a reduction in the Holdings leverage ratio. Charter's senior vice president/finance and treasurer, Eloise Schmitz, meantime said that the leverage ratio at Holdings is over 9 times with the first-quarter results.

Another debt transaction the company was involved in during the quarter was Charter Communications Operating, LLC's exchange in March of $271 million principal amount of new 8 3/8% senior secured second-lien notes due 2014 for $282.8 million of existing 8¼% senior notes due 2007 issued by Charter Communications Holdings, LLC. The transaction was carried out with what the company described in a filing with the Securities and Exchange Commission as "a small number" of institutional investors.

Not working on any transactions

Schmitz told an analyst on the call that while Charter "continue[s] to explore various financing transactions that may improve liquidity and extend maturities, and debt-for-debt exchanges would be a part of that list of options that we would continue to explore, we don't have any transactions currently that we are looking at or are prepared to announce."

Martin also said that Charter had privately repurchased $34 million principal amount of its 4¾% convertible notes due 2006 from a single holder.

"Of course," the acting CFO said, "we'll continue to explore additional opportunities to further improve our liquidity position throughout 2005 and beyond."

He further said that Charter would "also continue our ongoing efforts to rationalize our footprint, including divestiture of geographically non-strategic assets."

Completing small asset sales

Martin said that Charter was in the process of completing several small asset sales, involving about 28,000 customers, but declined to provide further specifics, other than characterizing the assets being sold as "rural, non-clustered assets," whose subscribers "are certainly below the average value of our customers."

He also declined to offer any specifics on other potential asset sales that might be in the offing - one analyst cited market speculation that assets with about 300,000 total subscribers are being shopped around - except to reiterate that they are "non-geographically strategic systems" that "generally would fit under the umbrella of more rural than urban."

However, in answer to another question asking the company executives to assess what the pending sale of Adelphia Communications Corp. to Time Warner Cable and Comcast Corp. and the likely impact on the cable industry would be - including the likelihood that those buyers will seek to divest some Adelphia assets that are not compatible with their own footprints - Charter's interim chief executive officer, Robert May, said that while the company does have a book out in the marketplace on its own systems for sale, "we will continue to opportunistically look at system sales and ways to bulk up geographically in the key markets that we are in."

Charter said it is in compliance with all of its lending covenants.

Loss wider than expectations

Charter posted a net loss for the quarter of $353 million ($1.16 a share), more than the average 82 cents a share loss that Wall Street had been expecting, and wider than the year-ago net loss of $294 million ($1 a share) a year earlier.

However, excluding the contribution of cable assets that since have been divested from the year-ago results, the latest numbers represent something of an improvement from what would be a pro forma year-ago loss of $391 million ($1.32 per share).

Adjusted EBITDA totaled $475 million for the first quarter, up $25 million (6%) on a pro forma basis excluding the divested assets, and up $12 million (3%) on an actual basis from year-ago adjusted EBITDA.

Charter added 94,000 high-speed internet and 19,900 digital video customers during the quarter, partly offset by a loss of 6,700 analog video customers, although this was the smallest subscriber loss in the last four quarters. The company also said it managed to increase revenue per analog customer - a key cable industry financial metric - by 11%.

Allen focused on fundamentals

As always with Charter, the wild card in any estimate of what's going to happen to the company is the fascinating figure of its billionaire founder and principal stockholder, Paul Allen. The bond and equity markets periodically go off on a buying binge for Charter securities on speculation that the enigmatic Allen is going to step in and invest further funds in the struggling company, or repurchase debt or otherwise take some definite action. Then, that enthusiasm subsides as quickly as it got started - until the next time.

Asked by an analyst to comment on "what Paul Allen is thinking these days, with his company having lost as many subs [subscribers] as it has over the past few years and with management having turned over several times," May replied that "as far as Paul [Allen] and the board is concerned, what they want us to do is to continue to working on the fundamentals of the business - it's pretty straightforward."

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