Charter Has Several Options for Needed Cash

As cable giant Charter Communications prepares to make an initial public offering of $3 billion in mid-October, doubts remain as to whether the cash will be sufficient to cover previously announced acquisitions.

But the company has several options open to it, according to industry observers.

Since March, Charter has acquired five smaller regional cable companies: Helicon Cable, Avalon Cable, Falcon Cable, Fanch Communications, and Bresnan Communications. Falcon will be the first of these deals to close, expected sometime in the fourth quarter.

Just how Charter will settle Falcon's outstanding debt issues has sparked speculation that Charter will seek additional financing, possibly in the junk bond market. There also has been speculation that Charter would try to renegotiate the coupons instead of paying up front for the 101 change-of-control option.

"Based on the structure of those transactions and the IPO, we expect Charter to be paying down debt at Charter LLC, but not at the Falcon, Avalon, and Bresnan levels...the holding company could potentially raise additional bonds to fund these acquisitions," said Aryeh Bourkoff, a cable, telecom and media analyst at CIBC World Markets.

Upon the closing of Charter's acquisition deals, the change-of-control option for bondholders will be triggered. Avalon, Falcon and Bresnan bonds are all trading below par in the high 90s. According to Bourkoff, trading these in at 101 could prompt Charter to seek additional financing.

"Would we need money to pay out these coupons? Of course we would," said Ralph Kelly, senior vice president and treasurer of Charter. He declined, however, to say how the firm would obtain the needed cash.

In Falcon's case, analysts report that Charter appears to want to negotiate with bondholders and pay the consent fee and raise the coupon payment rather than exercise the change of control put option.

Kelly said that final decisions concerning additional financing-future bond issues or secondary issues of stock-have not been reached.

"We've not talked to bondholders yet. Everything is still in negotiation," he said.