Charter gets over $31 billion in debt commitments for acquisitions

By Sara Rosenberg

New York, May 26 – Charter Communications Inc. received commitments for more than $31 billion in debt to help fund its acquisitions of Time Warner Cable Inc. and Bright House Networks, company officials said in a conference call on Tuesday.

BofA Merrill Lynch, Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. and UBS Investment Bank are leading the financing.

Under the Time Warner agreement, Charter will provide $100 in cash and shares of a new public parent company (New Charter) equivalent to 0.5409 shares of Charter for each Time Warner Cable share outstanding.

In addition, Charter will provide an election option for each Time Warner Cable stockholder – other than Liberty Broadband Corp. or Liberty Interactive Corp. – who will receive all stock, to receive $115 of cash and New Charter shares equivalent to 0.4562 shares of Charter for each Time Warner Cable share they own.

The deal values Time Warner Cable at $78.7 billion.

As for Bright House Networks, Charter will purchase the company from Advance/Newhouse Partnership for $10.4 billion.

Charter and Advance/Newhouse will form a new partnership under which New Charter will own between about 86% and 87% and Advance/Newhouse will own between about 13% and 14%, depending on the Time Warner Cable shareholders’ cash election option.

The consideration to be paid to Advance/Newhouse by Charter will include $5.9 billion of exchangeable common partnership units, $2.5 billion of convertible preferred partnership units that will pay a 6% coupon and $2 billion in cash.

Charter debt breakdown

The debt commitment obtained by Charter for the transactions includes $23 billion relating to the $100 per share cash portion of the Time Warner merger, a $4 billion bridge loan to fund the extra $15 per share if elected, $2 billion for the cash portion of the Bright House acquisition, and a $1.7 billion increase to Charter’s existing revolving credit facility so that it will total $3 billion, officials said in the call.

The revolver is expected to be undrawn at closing.

Officials explained that the commitment papers allow for significant flexibility to finance into various types of debt securities at various levels.

“We’ll be opportunistic with respect to the tranching and timing in placing that debt in advance of close depending on what the market gives us,” officials added in the call.

At close, pro forma debt would be nearly $62 billion, with leverage of 4.5 times 2015 estimated pro forma adjusted EBITDA. If the extra cash is elected in the Time Warner deal, debt would be about $66 billion and leverage would be around 4.8 times.

Charter/Liberty agreement

Stamford, Conn.-based Charter also said on Tuesday that Liberty Broadband Corp. has agreed to purchase, upon closing of the Time Warner Cable transaction, $4.3 billion of newly issued shares of New Charter at a price equal to $176.95 per Charter share.

In addition, Liberty Broadband will buy, upon closing of the Bright House transaction, $700 million of newly issued Charter shares at a price equivalent to $173.00 per Charter share.

Following the close of both the Charter-Time Warner Cable and the Charter-Bright House transactions, and depending on the outcome of the cash election feature offered in the Time Warner Cable acquisition, Time Warner Cable shareholders, excluding Liberty Broadband and its affiliates, are expected to own between about 40% and 44% of New Charter, Advance/Newhouse is expected to own between around 13% and 14% of New Charter, and Liberty Broadband is expected to own between around 19% and 20% of New Charter.

Closing on the Time Warner and Bright House acquisitions are expected to occur at the same time by the end of this year, subject to approval by both Charter and Time Warner Cable shareholders, regulatory review and other customary conditions.

The combination of Charter, Time Warner Cable and Bright House will create a broadband services and technology company serving 23.9 million customers in 41 states.

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