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Cable Operators

Charter Off SEC Hook; to Focus on Debt

7/27/2004 9:37 AM Eastern

The Securities and Exchange Commission has concluded its enforcement action against Charter Communications Inc., the MSO said Tuesday.

Under terms of the settlement, Charter agreed to entry of an administrative order prohibiting any future violations of U.S. securities laws. The operator neither admitted nor denied any wrongdoing, and the SEC assessed no fine against the company, Charter said.

The 20-month SEC investigation focused on how the MSO calculated its total number of customers; various accounting practices and procedures concerning capitalization of certain expenses; and dealings with certain vendors, including programmers and digital set-top suppliers.

As a result of the SEC probe, in July 2003, former Charter chief operating officer David Barford and former chief financial officer Kent Kalkwarf were indicted by the U.S. Attorneys for the Eastern District of Missouri on 14 counts of wire fraud, mail fraud and conspiracy to commit wire fraud.

Former Eastern region senior vice president David McCall was indicted on one count of conspiracy to commit wire fraud, and former Western region senior VP James (Trey) Smith was indicted on eight counts of wire fraud and conspiracy in an alleged scheme to inflate Charter's subscriber numbers.

“We are very pleased to put this issue from the past behind us,” CEO Carl Vogel said in a prepared statement. “We are a new company, and bringing this issue to closure allows us to focus on serving our customers.”

In other Charter news, lowering debt and driving new services will be the focus of the company’s executives for at least the next two years, Vogel told shareholders Tuesday.

Charter -- which has made some strides in paring down its $18.2 billion in debt through refinancings and by selling off some nonstrategic systems -- will look at several different opportunities to lower its leverage even further.

Vogel said at the annual meeting of shareholders in Seattle (chairman Paul Allen’s home base) that the MSO has three options to pare down debt: using its stock to acquire other systems with lower debt, issuing equity or exchanging convertible debt for equity.

He said that process would not take place overnight, adding that it is more like an 18-month to 24-month process.

In response to a shareholder question, Vogel said a leverage ratio of seven times annualized cash flow (the company is currently leveraged at about 9.8 times annualized cash flow) would be a good target.

Oppenheimer & Co. Inc. cable analyst Tom Eagan said it is likely that Charter would do a combination of all three scenarios to pare down debt, and he added a fourth option: selling off some of its own systems.

Charter sold nonstrategic systems with about 250,000 subscribers last year for some $824 million. The company has identified another 250,000 nonstrategic subscribers that it could sell, but so far, it has not announced any deals.

Charter shares closed at $3.23 each Tuesday, up 5.2% (16 cents) apiece.

 

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