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Charter Helps Prime High-Yield Pump

1/14/2001 7:00 PM Eastern

Cable operators are wading gingerly into the cool waters of high-yield bond sales, with several MSOs set to issue debt and others expected to follow.

Charter Communications Inc. started things off with plans to issue $850 million in senior debt, which was later bumped up to $1.75 billion. The offering priced Jan. 5.

Comcast Corp. priced a two-part, $1.5 billion debt offering through Merrill Lynch & Co. and Salomon Smith Barney Inc. last Wednesday. That issue included a five-year, $500 million tranche and a 10-year, $1 billion tranche.

The Charter issue is expected to be the largest high-yield offering since September, when EchoStar Communications Corp. issued about $1 billion in debt. The high-yield markets have largely been closed since then, as investors worried about a slowing economy.

Many had hoped the Charter deal would help jump-start the high-yield market, and in some respects it has.

Also last week, Liberty Media Group Inc. offered $550 million in convertible debt tied to shares of Motorola Inc. The 30-year convertible securities were priced through Lehman Brothers Inc. with a yield to maturity of 3.5 percent and a conversion premium of 12 percent.

Liberty received the Motorola shares through its holdings in General Instrument Corp., which Motorola purchased in 1999.

Last week, Viacom Inc. also completed a $1.65 billion bond offering, up from an originally planned $1.5 billion deal.

The Charter deal, through its Charter Communications Holdings LLC and Charter Communications Holdings Capital Corp. subsidiaries, included $900 million of 10.75 percent senior notes due 2009, $500 million of 11.125 percent senior notes due 2011 and $350.6 million of 13.5 percent senior discount notes due 2011 with a principal at maturity of $675 million.

The Charter units plan to use the proceeds to repay $272.5 million remaining under a $1 billion senior bridge loan and some outstanding debt under revolving credit lines. The offering was expected to close Jan. 10.

"I think that the bond market, and the high-yield market especially, is open to the higher-quality cable issuers," UBS Warburg LLC high-yield cable analyst Aryeh Bourkoff said. "For the higher-quality cable issuers like Charter, Adelphia [Communications Corp.], Insight [Communications Co. Inc.] and Mediacom [Communications Corp.], the high-yield market is open to those companies, given the fact that they have largely executed on their business models and have maintained relatively stable leverage ratios.

"Companies like Classic [Communications Inc.], Galaxy [Telecom Inc.] and James Cable [Partners L.P.] at this point still cannot access the high-yield market," he added.

Bourkoff said Insight actually set the stage for other cable operators in November, thanks to successful $500 million debt offering of Insight Midwest, a partnership between Insight Communications and AT&T Broadband.

Last week, Insight said it closed on another $1.75 billion credit facility to finance its Midwestern partnership. The Insight-AT&T partnership manages about 1.4 million subscribers in Illinois, Kentucky, Ohio, Georgia and Indiana.

Bourkoff said he expects other cable operators-including Mediacom-to tap the high-yield market soon, to help refinance existing debt and possibly for future acquisitions.

Some observers said they did not expect Insight to tap the bond market again this year, except possibly for acquisitions.

Adelphia, which obtained a $1.3 billion short term credit facility through Bank of America LLC and Salomon Smith Barney Inc. on Jan. 4, has placed about 900,000 subscribers in non-strategic markets for sale, and AT&T Broadband has reportedly put up another 1.4 million subscribers in rural markets.

"There are plenty of subscribers on the block," Bourkoff said. "Depending on which companies elect to acquire those subscribers, you might see some additional debt and equity financing later this year."

Last week, Adelphia said it would issue about $885 million in Class A stock and subordinated convertible debt, to refinance existing debt and for general corporate purposes.

Adelphia said it would issue about $485 million in Class A common stock and $400 million in convertible debt. The company did not set a date for the offering, but Bourkoff said he expected the deal to price within the next two weeks.

Bourkoff expected the debt portion to price at market rates, he added, given Adelphia's commitment to deleveraging its balance sheet and the recent appreciation in its stock. Adelphia's share price rose 59 percent between Dec. 5 and Jan. 5. The stock was trading Monday at $44.06 each, down $4.38 per share in late afternoon trading, "If you look at Adelphia's performance over the last four weeks, it is reasonable for them to be taking advantage of the market conditions and selling some equity," Bourkoff said.

September