Credit rating companies lower scores for Charter due to bankruptcy worries

Rick Wagner • Dec 28, 2008 at 12:00 AM

Bankruptcy could be looming for the Tri-Cities’ largest cable television provider, which recently saw Moody’s Investors Service and Fitch Ratings lower its scores.

Moody’s lowered its credit rating on Charter Communications Inc. by two notches Dec. 19 after the company said it will hold discussions with bondholders in order to shore up its finances, according to reports from the Associated Press, Wall Street Journal and other media.

“It’s like you or me trying to finance our house, our mortgage,” said Kevin Kick, marketing manager for Charter in East Tennessee. “(If a reorganization occurred) there would be no customer impact at all.”

The ratings agency said it believes a default is imminent and bankruptcy is likely for Charter in 2009.

According to a recent report in the Wall Street Journal and other media, Charter Communications is attempting to persuade its creditors to roll over its debt or trade it for equity.

Moody’s cut its rating on Charter to “Ca” from “Caa2.” Both are non-investment grade ratings.

“Charter’s ratings have long reflected a high probability of default and a fundamental mismatch between the company’s liability structure and its business model,” Russell Solomon, Moody’s senior vice president, said in a statement.

Fitch Ratings said Dec. 18 it has placed Charter Communications’ “CCC” issuer default rating on negative rating watch, a move that came after the cable operator said it will begin discussions with its bondholders about financial options to improve its balance sheet.

Fitch said the rating watch reflects its concern that the start of those discussions increases the likelihood that the company will engage in a broad-based distressed debt exchange or file for bankruptcy.

A “CCC” rating is non-investment grade, also known as “junk.”

However, online news articles across the country indicated any bankruptcy would be reorganizational, rather than a liquidation, which mirrors what Kick said — meaning customers wouldn’t necessarily see an immediate change in service.

St. Louis-based Charter is struggling with a debt load of about $21 billion. It warned earlier this year it may need to file for bankruptcy protection if it failed to raise additional funds to finance its cash needs by 2010.

“We believe engaging in discussions with our bondholders, aimed at improving our capital structure and enhancing our financial flexibility, is in the company’s and our customers’ best interests,” Charter CEO Neil Smit said in a news release.

Charter, which has announced area prices increases effective Jan. 1, serves Kingsport, Bristol and Sullivan County and parts of Elizabethton and Johnson City, as well as parts of Hawkins County including Mount Carmel, Church Hill and Rogersville.

Charter, controlled by Microsoft Corp. co-founder Paul Allen, reported interest costs of $478 million for the third quarter compared with operating income of $208 million. Allen no longer works for Microsoft.

Charter is the fourth-largest cable company in the United States after Comcast Corp., Time Warner Cable Inc. and Cox Communications.

Comcast serves some Johnson City and Elizabethton customers.

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