Charter offers six senior secured tranches as part of Time Warner Cable, Bright House funding

By Paul Deckelman

New York, July 9 – Charter Communications Inc. announced Thursday that it will sell six tranches of senior secured notes (Ba1/BBB-) ranging in tenor between five years and 40 years as part of the financing for the company’s pending acquisition of sector peers Time Warner Cable Inc. and Bright House Networks LLC.

The company will sell five-year, seven-year, 10-year, 20-year, 30-year and 40-year secured paper.

A market source expects the tranches to price later on in Thursday’s session.

Details were not immediately available as to the expected tranche sizes, although a market source indicated that they would be benchmark-sized.

Early chatter on the offering saw the five-year notes likely to come at a spread in the area of 215 basis points over comparable Treasuries, with the seven-year notes around 255 bps over Treasuries, the 10-year notes around 275 bps over Treasuries, the 20-year notes around 330 bps over Treasuries, the 30-year notes around 340 bps over Treasuries and the 40-year paper around 375 bps over Treasuries.

The Rule 144A and Regulation S offering will be brought to market via Goldman Sachs & Co., BofA Merrill Lynch (through that company’s Merrill Lynch, Pierce, Fenner & Smith Inc. subsidiary), Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and UBS Securities LLC.

Charter plans to sell the notes through its CCO Safari II, LLC subsidiary. The proceeds from the offering will be placed in escrow at CCO Safari II, LLC until the closing of the transaction between Charter and Time Warner Cable, at which time the notes will be assumed by two other Charter subsidiaries, Charter Communications Operating, LLC and Charter Communications Operating Capital Corp.

Charter, a Stamford, Conn.-based provider of cable, internet and phone service, plans to sell a total of $13.8 billion of new secured and unsecured notes, as part of the $31 billion of financing it will do to fund the acquisitions of Time Warner Cable and Bright House Networks.

The unsecured portion of the financing is expected to be done at a subsequent date.

According to an investor presentation Charter executives made earlier this week, the company is expected to sell $6 billion of senior secured first-lien notes and $3.5 billion of senior unsecured notes via Charter Communications Operating, LLC, as well as $4.3 billion of senior unsecured notes via another subsidiary, CCO Holdings, LLC.

The overall financing package also includes new bank debt – a $1.7 billion incremental senior secured revolving credit facility and $15 billion of incremental senior secured term loans. There will also be a $5 billion equity investment in the combined company being formed – temporarily designated as “New Charter” – by the existing Charter’s largest current shareholder, Liberty Broadband Corp.

Charter anticipates that the first-lien notes, the bank debt and Time Warner Cable’s $23.3 billion of existing debt being assumed as part of the acquisition deal will all rank pari passu in the New Charter capital structure and will receive investment-grade ratings from Standard & Poor’s and Fitch Ratings, allowing the notes’ eligibility for inclusion in investment-grade performance indexes.

Charter is merging with New York-based Time Warner Cable in a cash-and-stock transaction that values the latter at $78.7 billion, including the assumed debt, and will acquire Syracuse, N.Y.-based Bright House for $10.4 billion in cash and common stock and convertible preferred units in a partnership that Charter is forming with Bright House’s current owner, Advance/Newhouse Partnership.

The three companies envision the formation of a combined broadband services and technology provider serving 23.9 million customers in 41 states.

The assumption of Time Warner Cable’s more than $23 billion of existing debt – along with the new issuance, as outlined, to finance the cash portions of the transaction – will shoot New Charter’s overall debt load up to some $62 billion from the existing Charter’s current roughly $14 billion of total debt.

However, the new capital structure targets total leverage, as measured by debt as a multiple of adjusted EBIDA, of between 4.0 times and 4.5 times, with New Charter planning to manage to the low end of that range. Secured debt alone would have about a 3.5 times leverage measure.

Aleesia Forni contributed to this report

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