Charter Says Chapter 11 Rumors Are False

Cable World, Oct 14, 2002

Byline: MAVIS SCANLON

It's hard to say who's feeling more pain right now in St. Louis: fans of the Rams, whose 0-5 losing streak in the NFL's first five weeks has virtually dashed any playoff hopes, or shareholders of Charter Communications, whose stock dropped 47% in eight days, closing at $1.05 last week.

Rumors even began circulating through Wall Street that Charter may file for Chapter 11 bankruptcy protection. It's a charge the company vehemently denies.

"The rumor and speculation that our low stock price is going to drive us into bankruptcy is false," says SVP of communications Dave Andersen. "We are fully funded through 2004." Andersen also pointed to recent comments from Moody's Investors Service saying Charter has the liquidity to fund its obligations over the next year.

Investors are skittish on three points: Charter's $17 billion-plus debt load, a leverage ratio that's higher than its peers and an exodus of basic cable subs. Although Moody's is comfortable with Charter's ability to service its debt over the near term, one thing that worries Moody's SVP Russell Solomon is Charter's Oct. 2 announcement relating to basic video subscriber losses, which are cutting into revenue and cash flow. "We have to figure out whether those operating disappointments are temporary or something more permanent," he said.

The stock's sharp decline has led many to believe that Paul Allen, Charter's founder and controlling shareholder, will take the company private or buy more of Charter's debt in exchange for equity. Carl Vogel, Charter's CEO, and Allen, along with the heads of other Allen-controlled businesses, met at Allen's offices last week, though Andersen says the meeting was a regularly scheduled one.

"I don't believe the company has to file for bankruptcy by the end of this year," said Aryeh Bourkoff, analyst at UBS Warburg. But Charter would benefit from "a proactive capital structure fix," he adds, such as a big debt-for-equity swap. In July, Bourkoff downgraded his rating on Charter's bonds to hold from buy; since then the bonds have slid to 50 from 65.

For a more complete picture of Adelphia's finances, see "Cable TV Investor" at www.kagan.com.