Charter 'comfortable' with current leverage, aims at 4x to 4.5x

By Paul Deckelman

New York, Oct. 10 - Charter Communications, Inc. has a "moderate" leverage target that it is "comfortable" with - and it has managed to opportunistically take advantage of capital market conditions to greatly push out its maturity profile, the Stamford, Conn.-based cable, voice and broadband services provider's president and chief executive officer said Thursday.

Speaking at Liberty Media Corp.'s annual investor meeting - Denver-based Liberty is Charter's largest shareholder, having bought a roughly 27% stake from several private-equity firms earlier this year and has four representatives, including Liberty chairman John C. Malone, on Charter's board of directors - Charter CEO Thomas M. Rutledge said that his company "has a unique financial profile because of its history," which includes a pre-packaged bankruptcy reorganization in 2009.

In recounting the Charter story, Rutledge - who was not a part of the previous management, having come over to Charter from rival Cablevision Systems Corp. in February 2012 - said that Charter "got into trouble because of what they paid, essentially, for the properties" assembled by company founder Paul Allen, "and how they managed them and went bankrupt" in late March of 2009.

He acknowledged that "in the process of that bankruptcy, Charter did not do well relative to its peers and did not provide good service and cut costs in places that shouldn't be cut," leaving it behind such competitors as Cablevision, Time Warner Cable and Comcast in many key performance metrics, although Rutledge also said that that provides great opportunity for the restructured Charter to improve its metrics.

And one of the things that was also cut in the course of that bankruptcy was its debt, which had ballooned to over $24 billion by the time the company slid into Chapter 11. When Charter emerged from bankruptcy in November of 2009, almost eight months to the day after its initial filing, the debt load had been chopped down by over $8 billion, or about 40%.

Debt cut to $12.8 billion

And since then, Charter has cleaned up its balance sheet to bring total long-term debt down to $12.8 billion as of the end of the 2013 second quarter on June 30, according to the company's most recent 10-Q filing with the Securities and Exchange Commission.

Rutledge told the Liberty investors that in terms of a target level for leverage, "we're very comfortable between 4.0 and 4.5 [times]."

He said that the company's current ratio of net debt as a multiple of trailing 12-month adjusted EBITDA moved up to around 5 times following its acquisition in July of cable properties in Colorado, Montana, Wyoming and Utah owned by Optimum West/Bresnan Broadband Holdings, LLC, formerly owned by Cablevision, for $1.625 billion in cash. Charter paid for the acquisition by entering into a $1.5 billion term loan facility, supplemented by borrowings under its Charter Communications Operating LLC unit's existing credit facilities.

Rutledge said that "while we have a point of view, we're also opportunistic and we're comfortable with the leverage that we have."

He called it "a moderate leverage target that we're comfortable with."

Refinancing - twice

The CEO also touted "a great maturity profile - we've been able to essentially refinance the whole company twice over the last several years."

In that time, he said that Charter - which has been an active and familiar junk bond market participant - had "actually gone to market with $25 billion of debt on a $12.5-to-$13 billion debt basis because of the opportunity the market has given us. We've pushed out our maturities for a significant period of time.

According to the 10-Q data, Charter's nearest-term maturity as of the end of the second quarter was $350 million due on a term loan at its CCO Holdings LLC subsidiary that comes due in September 2014.

Its nearest bond maturity was $1 billion of 7¼% CCO Holdings notes due 2017. Its capital structure also includes another $9.35 billion of CCO Holdings junk bonds maturing between 2019 and 2024.

There was also $2.18 billion of credit facility debt at the Charter Communications Operating level entered into earlier this year and due in 2020 and 2021, including the loan used to finance the Optimum West deal.

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