Wednesday, August 24, 2005

Chartering a comeback?

If you read this blog regularly you know I have an odd affinity for following Charter, but I never know whether to be long or short it, so I just sit on the fence. (Click Here for past postings re: CHTR.)

Charter is fascinating because they have the products in place to dominate, innovate, and revolutionize Internet, advertising, marketing, telephony and television. I firmly believe they could eliminate commercials and replace it with product placement.

But they don't know how to run themselves.

From my observation it seems the stock price is driven rather strongly by news announcements.

As of this writing CHTR is up 37% today...(which if you still hold from when it was in the 15s, you're saying "who cares!"). Why so much? They have announced that they are restructuring some of their insane debtload.

Does that justify a price increase? Nonetheless a 37% price increase? I don't think so. I think the prospective shareholders just wanted to hear something, anything regarding their debt.

Here's what they did: They are issuing a private placement of debt. (What's this mean? You have to make alot of money a year, or have a net worth of 1 million to be able to buy the soon-to-be issued bonds). The proceeds will pay off the publicly held bonds. The new bonds will have a longer maturity.

I say so what. You still have 18 Billion in debt. (off the top of my head I think its 18 Billion, don't fry me if I'm wrong on that!). I still think the way to fix Charter is to improve morale, improve operations, attack the debt, and innovate.

There are other ways to get rid of their debt. They could issue stock to finance paying off the debt.

Instead they chose to move their debt from one group to another.

Let's watch and see what happens!

*****************Update 8/25, 10:26am**************************

This is in response to the first comment to this post....hopefully this adds some useful info:

I'm not a finance major either...I'm a common sense major.

If they reduced their interest rate that would be very significant...but they are extending the maturity and keeping the same coupon rate (aka interest rate).

The most significant thing they are doing is moving the debt from the public to only accredited investors.

accredited investors = To qualify as an accredited investor, an investor must either be: A) a financial institution; B) an affiliate of the issuer; or C) an individual with a net worth of at least $1 million or an annual income of at least $200,000, and the investment must not account for more than 20% of the investor's worth.

This has to have been done for a reason, unless it was just action for the sake of action.

I would not be surprised here if a hedge fund, or Paul Allen bought up alot of those Private Placement shares similiar to what happened to Kmart. Bondholders have liquidity rights before the if Charter starts to liquidate shares, the bondholders have first dibs at the proceeds. And Charter has assets in its infrastructure which could be sold to another cable company or SBC.

We'll sit back and watch.


Anonymous Anonymous said...

I am not a finance major or know much about the industry, but won't they save a ton of money assuming they've lowered the interest rate on the debt. I don't see why they would restructure debt and not get better terms. So on an 18 billion dollar debt, shaving any fraction from the interest rate would be saving a ton of money. Yet no matter what they do they have an 18 Billion dollar debt whatever way you look at it. However, this should not drive a stock up as much as charter's stock went up. It's a good start for the company though, let's see what they do after this.

Thu Aug 25, 11:01:00 AM EDT  

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