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Thursday, August 25, 2005
Charter trades debt to avert bankruptcy
Charter Communications Inc.'s shares and bonds soared on a plan to swap $8.4 billion in debt for new bonds to conserve cash and help avert bankruptcy for the cable operator controlled by Mercer Island billionaire Paul Allen.
Charter, with about $19 billion in debt, will exchange notes maturing from 2009 to 2012 for securities due in 2015, the company said in a statement. The exchange would reduce outstanding bonds by as much as $1.65 billion, according to UBS AG analyst Aryeh Bourkoff.
Speculation that St. Louis-based Charter would run out of money to pay its debts has driven the fourth-biggest U.S. cable company's stock down 49 percent this year. Charter, with only one profitable quarter in the past four years, has $5.1 billion of debt due in 2009.
"The biggest positive is that it pushed their maturities out, which gives them more time to grow into their capital structure," said Ron Bringewatt, managing director of research at a New York distressed dealer, The Seaport Group. "This is also indicative that Paul Allen and ownership don't want Charter to file for bankruptcy."
Charter shares rose 41 percent, or 47 cents, to $1.62 in Nasdaq trading. Bourkoff raised his equity rating Wednesday from "neutral" to "buy" with a 12-month price target of $2.50.
"Extending the debt payment gives them a chance to build their business," said Matthew Harrigan, an analyst at Janco Partners Inc. in Greenwood Village, Colo. He rates Charter "market perform" and doesn't own the shares.
Charter has $12 billion in bonds in Merrill Lynch & Co.'s junk index, making it the fourth-biggest issuer of high-yield, high-risk debt.
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