Charter steals focus with active trading and higher levels on debt buy back news

By Sara Rosenberg

New York, Sept. 19 - Charter Communications Inc.'s bank debt stole the spotlight in the secondary market as the paper headed higher and traded actively following the company's announcement regarding an approximately $1.9 billion debt buyback.

The term loan B was quoted at 95 bid, 95½ offered, up about three quarters of a point from Thursday's quotes of 94¼ bid, 94¾ offered, according to a trader. A second market source agreed with those levels, saying that he saw a lot of the paper trade in that context during market hours.

"I think people have been anticipating it, but it was a big announcement," the trader said. "It's a very positive message to the market in terms of liquidity and taking care of maturities that some people had given up on after they failed last month."

On Friday Charter revealed that it and its indirect subsidiary, CCH II, LLC, entered into agreements to purchase $609 million principal amount of its convertible senior notes and $1.3 billion principal amount of the senior notes and senior discount notes issued by Charter Communications Holdings LLC from a small number of institutional investors in privately negotiated transactions.

In exchange, CCH II will issue $1.6 billion principal amount of 10.25% notes due 2010. CCH II also will sell an additional $30 million principal amount of 10.25% notes for cash to cover accrued interest on notes exchanged.

"These exchanges are an important component in our continuing efforts to improve the company's capital structure. By acquiring over 44% of the principal amount of our convertible notes, we are significantly reducing the amounts of maturities coming due in 2005 and 2006 and have also captured approximately $294 million in debt discount. This debt discount, together with the anticipated proceeds from our previously announced asset divestitures, exceeds $1.1 billion, the bulk of which will be used to reduce indebtedness. We intend to continue to explore opportunities to improve the credit quality of the company," said Carl Vogel, president and chief executive officer, in a news release.

In July the St. Louis cable company announced plans to commence cash tender offers for up to $1.106 billion of the outstanding principal amount of Charter Communications, Inc.' convertible senior notes and up to $285 of Charter Communications Holdings' senior notes and senior discount notes. Charter planned to fund the tender offers through a $1.7 billion financing by subsidiaries.

However, in August the company opted to terminate its tender offers citing unfavorable market conditions as the impetus behind the decision. "The combination of a significant increase in the yield of the benchmark 10-year Treasury and mutual fund outflows over the past few weeks made this transaction economically unattractive for the company. We continue to be committed to improve our capital structure over time and will revisit this and other transactions as market conditions improve," Vogel said in a news release at the time of the tender offer termination.

In primary news, there are a handful of deals scheduled to launch next week - including DRS Technologies Inc., Magellan Health Services Inc., Overnite Transportation Co. and Pinnacle Foods Corp.

DRS is launching a $512.5 million credit facility (Ba3/BB-) on Tuesday, consisting of a $362.5 million term loan B and a $150 million revolver. Bear Stearns and Wachovia are the lead banks on the deal.

Proceeds, combined with proceeds from a bond offering, will be used to help fund the acquisition of Integrated Defense Technologies Inc. The transaction is expected to close by the end of this year, subject to customary regulatory approvals and other closing conditions.

DRS is a Parsippany, N.J. supplier of defense electronic products and systems.

Magellan is expected to launch a $230 million five-year exit financing facility, possibly as soon as Tuesday, consisting of a $100 million term loan B, a $50 million revolver and an $80 million letter of credit facility. Deutsche Bank is the lead bank on the deal.

Proceeds from the term loan will be used by the Columbia, Md. managed behavioral healthcare company to repay existing debt.

Overnite Transportation is launching a $300 million credit facility (Ba1) on Tuesday, consisting of a $125 million five-year term loan and a $175 million five-year revolver, of which up to a maximum of $150 million will be available for the issuance of letters of credit. Credit Suisse First Boston and SunTrust Bank are joint lead arrangers and joint bookrunners on the deal.

Proceeds from the term loan will be used to pay a portion of the cash dividend to Union Pacific Corp. in connection with the spin-off. The remaining portion of the cash dividend will be funded with initial borrowings under the revolver.

Overnite Corp., based in Richmond, Va., operates a less than truckload trucking company.

Pinnacle Foods is expected to launch a $225 million credit facility, consisting of a $170 million term loan B and $55 million of pro rata bank debt. JPMorgan and Deutsche are the lead banks on the deal.

Proceeds will be used to help fund the previously announced acquisition of Pinnacle Foods by JPMorgan Partners, in partnership with C. Dean Metropoulos, from Hicks, Muse, Tate & Furst Inc. in a transaction valued at $485 million.

Pinnacle Foods is a Cherry Hill, N.J. manufacturer and marketer of branded food products formed by Hicks, Muse, Tate & Furst and C. Dean Metropoulos in 2001 to acquire Swanson frozen foods, Vlasic pickles and condiments, and Open Pit barbeque sauce from Vlasic Foods International.

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