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Charter Communications to file prearranged bankruptcy

The cable operator says it has reached an agreement with holders of $8 billion in debt, who will accept common shares in lieu of repayment. The filing will not affect subscribers, the company says. .

February 13, 2009|Associated Press

Struggling Charter Communications Inc., the nation's fourth-largest cable operator, said Thursday that it planned to file a prearranged Chapter 11 bankruptcy by April 1.

Charter, which is controlled by Microsoft Corp. co-founder Paul Allen, said it had reached an agreement in principle with holders of $8 billion in debt, who will give up repayment of their debt.

In return they will receive common shares, or warrants for rights to get common shares, that translate to nearly owning the entire company after bankruptcy.

Allen will remain as an investor and retain the largest voting interest in Charter. Though his 51% stake in the company will be wiped out, along with those of other shareholders as the stock is canceled, Allen was given voting control by debt holders. Allen also holds some debt, which will be converted, and preferred stock.

In a prearranged bankruptcy, a company enters into reorganization with a plan to emerge that has the approval of major stakeholders. The rest of the creditors will be dealt with through Bankruptcy Court.

In a prepackaged bankruptcy, each creditor has voted on the plan before the filing.

The bankruptcy filing should have no effect on subscribers, many of whom live in Southern California.

Charter said it planned to pay what it owes to suppliers and other trade creditors in full and go about the normal course of business.

"We are pleased to have reached an agreement with such a significant portion of our bondholders on a long-term solution to improve our capital structure," said Charter Chief Executive Neil Smit in a statement.

Allen, who owns the NFL's Seattle Seahawks and the NBA's Portland Trail Blazers, put more than $7 billion into Charter, his biggest investment after he left Microsoft in 1983.

Over the years, Charter piled on debt for acquisitions. It now serves 5.5 million customers in 27 states.

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