NEW YORK — Paul Allen-backed cable operator Charter Communications won a temporary stay of financial execution this month, as the company confirmed that he will personally pump in $300 million to keep creditors at bay while it works to sell off cable system properties and improve liquidity.
Alas, the company also disclosed that the Securities & Exchange Commission has opened a formal investigation into its accounting practices — on top of pending federal criminal investigation of financial activities.
St. Louis-based Charter, the country’s third-largest cabler with around 6.7 million subscribers scattered among 40 states, on Tuesday filed its 2002 10K complete with a full set of KPMG-audited 2002 financial results, and restated accounts for 2000 and 2001.
On Monday, cable market leader Comcast gave Allen 30 days to collect his thoughts — and cash — on a put option that would have required Allen to pay $725 million to buy Comcast out of a stake in Charter that it had inherited from AT&T Broadband.
Instead, Allen’s private investment firm Vulcan Ventures is believed to be negotiating to swap Charter systems in Texas or New England in exchange for Comcast’s 24.3 million preferred shares in a Charter subsid.
Charter reported a fourth-quarter loss of $1.87 billion due to asset writedowns. With its credit rating sinking, the debt and equity markets are off-limits. That puts the fiscal pressure primarily on the reclusive Allen.
Billionaire Allen could certainly be forgiven for running out of patience with his media investments. His cable operation is still sucking up cash to ward off creditors, even after he forked over $7 billion to buy it in the first place. SEC bookkeeping watchdogs are breathing down his neck, and there doesn’t appear to be any imminent chance of cashing out of his 24.5% stake in privately held DreamWorks with a profit.
Charter has struggled to restore credibility with shareholders and lenders, replacing management, making deep budget cuts and focusing on mining as much revenue out of its expensively acquired subscribers as possible. But to restructure its prodigious $18.6 billion debt pile, asset sales — if not a wholesale debt restructuring — may be inevitable.
In the meantime, however, president-CEO Carl Vogel told investors in a late Tuesday conference call that he was intent on rebuilding operations with the new management team.
With the focus on generating free cash flow, the company said it has halved its capital expenditure from last year, but still needs to spend around $1.1 billion this year.
Describing it as a company on the mend, Vogel declined to provide financial guidance for coming quarters, saying it would be inconsistent with the company’s focus on restoring long-term health and performance.
The good news is that its network rebuild and upgrades are substantially complete. That means video-on-demand and high-speed revenues should be in store for the future.
The bad news is that lenders may not be able to wait that long.
Vogel said the company would continue to evaluate balance sheet options to improve liquidity, including selling off assets in order to reduce debt. He said he is pleased with the interest shown so far on certain properties, but he wouldn’t name buyers.
It’s believed that private equity players such as Blackstone, the Carlyle Group and Providence Equity Partners have expressed interest in any number of Charter systems including Miami Beach.
Comcast also could have its eye on strategic systems in Los Angeles, San Francisco, Dallas/Fort Worth and Atlanta in order to further strengthen its hold on the U.S. cable market.