Charter Communications Inc needs to radically overhaul its debt as it struggles with the cost of an increasingly insurmountable burden, and a reorganisation of its obligations in bankruptcy is a possibility. The fourth-largest US cable company said on Friday it has engaged Lazard LLC to initiate negotiations with its bondholders as a means of increasing its financial flexibility.
The news sent its bonds plunging, though they have since recovered most of the weakness. Charter's 10.25 percent bond due 2010 dropped more than 8 cents to 30 cents on the dollar, before jumping back to 35 cents on Wednesday, according to MarketAxess.
"The company would not need to negotiate with bondholders if it could pull off another significant debt-for-debt swap, we think," CreditSights analyst Jake Newman said in a report. "So, it appears there is more going on under the surface." Charter has undergone refinancings to extend the maturity of its debt every year since 2004 as it struggles with the cost of carrying a debt load that now stands at around $21 billion. Charter has been increasing revenues and gaining new subscribers, though the company's debt per subscriber has risen to over $4,000. This compares to a possible value of only around $2,400 per subscriber, if the company is valued at similar levels as competitor Time Warner Cable Inc, said CreditSights.
"Based on the $2,400 per subscriber valuation, banks are getting close to losing asset cover for their loans," said CreditSights' Newman. "If our speculation is true, that would suggest that Charter is finally running out of liquidity rope and needs a major restructuring of its bonds." Charter's revenues rose 7.3 percent in the third quarter, while net customer additions increased more than 50 percent year over year, the company said in the release.
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