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Wednesday, August 09, 2006

Charter Chapter 11?

Stocks: CHTR

Charter Communications would be an unbelievable player in the cable TV and VoIP space if it did not have $19 billion in debt. But, it does.

After earnings were released, the company’s stock fell to $1.18, down about 10%. The stock has traded below $1 earlier this year.

Charter’s numbers for the quarter ending June 30 were reasonably good, but to support its debt, they need to be spectacular. Revenue for continuing operations rose 9.2% to $1.383 billion. Operating income from continuing operations rose slightly to $146 million. But, with interest costs factored in the net loss was $382 million.

The company’s situation is a shame. After buying a lot of assets it did not need and driving debt through the roof, the company finds itself on the ropes at a time when its cable TV and voice over IP businesses are growing. Customers using Charter’s phone system rose 35% from the immediately previous quarter and the company has expanded the system so that it now passes 4.7 million homes. The company projects that the number will increase to 6 to 8 million homes by year-end. The company also had solid growth in broadband, analog video and digital video customers.

The elephant in the room for Charter is summarized nicely in the !0-Q that came out with earnings:

The Company expects that cash on hand, cash flows from operating activities, proceeds from sales of assets, and the amounts available under its credit facilities will be adequate to meet its cash needs through 2007. “The Company believes that cash flows from operating activities and amounts available under the Company’s credit facilities may not be sufficient to fund the Company’s operations and satisfy its interest and principal repayment obligations in 2008, and will not be sufficient to fund such needs in 2009 and beyond. The Company continues to work with its financial advisors in its approach to addressing liquidity, debt maturities and its overall balance sheet leverage”. Obviously, Charter will have to raise money. A fair amount of the company’s debt is already at high-yield rates above 10% with some as high as 13.5%.

The company’s growth in high speed internet and cable video service would only have to stumble slightly in future quarters for the company’s problems to become acute. With a market cap down to $517 million, it would take very little to wipe that out completely.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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