Charter, controlled by Microsoft co-founder Paul Allen, labored for years to compete with satellite television and, more recently, with phone companies offering extensive video, Internet, and other broadband features.
The company spent billions in the 1990s buying up more than a dozen cable companies, increasing its subscriber base fivefold. It spent billions more to upgrade those systems to compete with DirecTV
Before the recent deterioration in the debt markets, Charter had been able to pay for or renew its debt, which totaled $21.7 billion at the end of 2008, it said in a court filing.
But with no way to fund spending that outpaced earnings, the company said it negotiated a restructuring with bondholders that will reduce its debt by $8 billion.
The company said it will operate and serve its subscribers as usual.
The move, telegraphed by Charter a month ago, allows it to cut annual interest payments by $830 million and increase its cash. It expects to emerge from bankruptcy by August.
It also may help ease the company's cash flow situation, said David Joyce, an analyst at Miller Tabak & Co.
This will help them get to free cash flow break-even maybe within a year which wasn't going to be the case otherwise, Joyce said. There is still a large debt load there.
Paul Allen, who controlled the company prior to bankruptcy through his equity stake, will receive up to 7 percent of equity in the company and keep the largest voting interest in the company at 35 percent.
The move will enable the company to leave untouched more than $11 billion in bank debt with favorable interest rates. Most shareholders will be wiped out in bankruptcy, as is typical.
JPMorgan Chase & Co.
In the suit, it said that the court should rule that there was a default on the pre-petition credit agreement between itself and Charter and not unimpaired or untouched as determined in Charter's bankruptcy restructuring plan.
The bondholders will invest more than $3 billion in the company including $2 billion in equity, $1.2 billion through the roll-over of pre-petition debt and $267 million in new debt, the company said.
Those bondholders, including private equity firm Apollo Group, will get the majority equity position in the company through the debt-for-equity swap and rights offering, according to sources with direct knowledge of the situation.
Charter's revenue increased 8 percent in 2008 while it reported a net loss of $2.45 billion.
The company employs 16,500 people in 27 states and serves about 5.5 million residential and commercial customers.
The company, which filed for protection under Chapter 11 of U.S. Bankruptcy Code in the Southern District of New York, plans to fund operations during the bankruptcy with cash it has on hand and cash from operating activities. Its filing, in joint administration with other companies including a Paul Allen unit, brings the debt total up to $24.2 billion.
As of March 27, 2009, Charter had about $700 million in cash on hand and cash equivalents.
Consequently, Charter avoids the need for debtor-in-possession financing, which has become pricier and more difficult to negotiate because of tight credit markets. It has $13.1 billion in assets, according to court documents.
It's rather shocking and out of the normal course of business not to arrange DIP financing, said Anthony Sabino, a lawyer at Sabino & Sabino and a professor of law and business at St. John's University.
In February, Charter said it would file for bankruptcy by April 1 after coming to an agreement with bondholders on a debt restructuring.
Charter said the reorganization had the support of 73 percent of the holders of its 11 percent senior secured notes due 2015 of CCH I and 52 percent of the holders of the 10.25 percent senior notes due 2010 and 2013 of CCH II.
Charter's chief restructuring officer is Gregory Doody, who led energy company Calpine Corp
Charter is being advised by Kirkland & Ellis, Lazard and AlixPartners. The bondholders are being advised by Paul, Weiss, Rifkind, Wharton & Garrison; Houlihan Lokey Howard & Zukin Capital and UBS Securities.
The case is in re: Charter Communications, Inc., U.S. Bankruptcy Court, Southern District of New York, No. 09-11435.
(Additional reporting by Tom Hals and Franklin Paul; Editing by Steve Orlofsky, Derek Caney and Carol Bishopric)