Charter Communications' joint plan of reorganization confirmed

By Lisa Kerner

Charlotte, N.C., Nov. 17 - Charter Communications, Inc.'s pre-arranged joint plan of reorganization was confirmed by the U.S. Bankruptcy Court for the Southern District of New York, according to a company news release.

According to Charter, the confirmation allows the company to conclude "one of the largest and most complex pre-arranged financial restructurings ever."

Once the plan becomes effective, Charter said it expects to generate positive free cash flow by reducing more than $830 million in annual interest expense.

The company also expects to reduce approximately $8 billion of debt under the plan.

Charter anticipates the plan becoming effective even if there is a pending court appeal, the release said.

On Tuesday, the bankruptcy court extended Charter's exclusive periods to file a plan of reorganization to March 22 and the solicitation period to May 21, 2010, an attorney close to the case said. However, the extensions are moot given the court's approval of the plan, said the attorney.

As previously reported, Charter reached agreements-in-principle in February 2009 under which members of a debtholders committee would invest more than $3 billion, including up to $2 billion in equity proceeds, $1.2 billion in roll-over debt and $267 million in new debt, to support the overall refinancing.

In July, Charter announced the plan was amended to provide additional consideration to holders of its convertible senior notes while maintaining all of the key terms of its original pre-packaged plan of reorganization.

The additional consideration to the Charter noteholders will come in the form of 15% payment-in-kind preferred stock in the reorganized company and potential amounts from a litigation escrow depending on the bankruptcy court determining which Charter entities are entitled to the proceeds of the escrow.

Charter said the amended plan also adjusts the terms of the new preferred stock to increase the amount to $138 million from $72 million, change the mandatory redemption date to five years after issuance from seven years, increase the new preferred stock dividend rate to 17% and 19% in years four and five, respectively, and provide for the listing of the new preferreds on a stock exchange along with the company's new common stock.

Plan support

The company said its pre-arranged plan of reorganization is supported by Paul G. Allen and his affiliates and by the bondholder committee, which consists of holders of about 73% in principal amount of CCH I, LLC's 11% senior secured notes due 2015 and holders of roughly 52% in principal amount of the 10¼% senior notes due 2010 and 2013 of CCH II, LLC.

Allen will continue as an investor and will retain the largest voting interest in the company, according to the release.

Allen distribution

Under the plan, Allen and his affiliates will receive the right to exchange, directly or indirectly, all or a portion of their reorganized holding company equity for new class A stock and shares of new class B stock representing 2% of the equity value of the reorganized company and 35% of the combined voting power of the reorganized company's capital stock.

In addition, Allen and the affiliates will receive warrants to purchase shares of new class A stock, with a term of seven years in an amount equal to 4% of the equity value of the reorganized company; $25 million in satisfaction of amounts owed to Charter under a management agreement; $150 million in cash; $85 million of new CCH II notes, which will be deemed transferred from the existing holders of CCH I notes; and up to $20 million in cash for payment of actual out-of-pocket fees and expenses in connection with the proposed restructuring.

The plan also calls for the reinstatement of the current debt of the CCO Holdings, LLC and Charter Communications Operating, LLC subsidiaries. Charter said CCO Holdings' unsecured notes will continue to accrue interest that will be paid upon emergence from bankruptcy.

Rights offering

According to the disclosure statement, the restructuring will include an up to $1.6 billion rights offering. An additional $400 million in cash will be raised through an over-allotment option.

Holders of $4.1 billion in total principal amount of notes issued by CCH I and CCH II have agreed to fully backstop the rights offering and have committed to purchase up to $267 million in additional new CCH II notes.

New stock

Shares of new class A stock will be issued to rights offering participants, equity backstop parties upon the exercise of the over-allotment option, holders of CCH I note claims, the Allen entities upon exchange of their reorganized holding company equity, warrant holders and holders of equity-based awards under a management incentive plan.

Meanwhile, shares of new class B stock, which will entitle the holder to a number of votes equal to 35% of the combined voting power of the capital stock of the reorganized company, will be issued to authorized class B holders.

Each share of new class B stock will be convertible into one share of new class A stock at any time from Jan. 1, 2011 until Sept. 15, 2014, at the election of a majority of the disinterested members of the board of directors and at any time after Sept. 15, 2014 at the election of a majority of board members not elected by class B stockholders.

Shares of new 15% preferred stock will be issued to holders of Charter notes. The preferred stock will have an initial liquidation preference of $1,000.

The board of the reorganized company will also be authorized to issue up to 250 million shares of an additional series of preferred stock.

Plan creditor treatment

Under the pre-packaged plan:

• Holders of administrative expense claims, priority tax claims and priority non-tax claims will recover 100% in cash;

• Holders of secured claims will recover 100% either in cash plus interest or the return of the collateral securing the claim;

• Holders of general unsecured claims will recover 100% either through reinstatement of their claims or full payment in cash;

• Holders of Charter notes claims will recover 19.3% through a share of new preferred stock and $24.25 million in cash;

• Holders of CII shareholder claims will receive 100,000 shares of new class A voting common stock issued by reorganized CCH II;

• Holders of CCH notes and CIH notes will recover 0.4% and 0.5% in warrants;

• Holders of CCH I notes claims will recover 12.7% through their share of new class A common stock equal to 100% of the new common stock outstanding as of the effective date and the right to participate in the rights offering;

• Holders of CCH II notes claims will recover 100% through full payment in cash unless the holder is a rollover party or elects to exchange the notes for new CCH II notes;

• CCO notes and credit facility claims will be reinstated;

• Holders of CCO swap agreement claims will be paid in full in cash plus interest; and

• Holders of Charter interests and section 510(b) claims will not receive any distribution.

Charter Communications is a St. Louis-based provider of video services, high-speed internet services and telephone services to residential and commercial customers on a subscription basis. The company filed for bankruptcy on March 27, 2009. Its Chapter 11 case number is 09-11435.

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