Charter 2004 Annual Report Download - page 117

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2004 FORM 10-K
Notes to Consolidated Financial Statements (continued)
Credit Facilities and Covenants making distributions to their parent companies (including
The Company’s ability to operate depends upon, among other Charter and Charter Holdco) for payment of interest and
things, its continued access to capital, including credit under the principal on Charter’s convertible senior notes, in each case
Charter Communications Operating, LLC (‘‘Charter Operating’’) unless there is no default under the applicable indenture and a
credit facilities. These credit facilities, along with the Company’s specified leverage ratio test is met at the time of such event.
indentures, are subject to certain restrictive covenants, some of CCH II, CCO Holdings and Charter Operating meet the
which require the Company to maintain specified financial ratios applicable leverage ratio test under each of their respective
and meet financial tests and to provide audited financial indentures, and as a result are not prohibited from making any
statements with an unqualified opinion from the Company’s such distributions to their respective direct parent.
independent auditors. As of December 31, 2004, the Company The indentures governing the Charter Holdings notes
was in compliance with the covenants under the Company’s permit Charter Holdings to make distributions to Charter
indentures and under its credit facilities and the Company Holdco for payment of interest or principal on the convertible
expects to remain in compliance with those covenants for the senior notes, only if, after giving effect to the distribution,
next twelve months. As of December 31, 2004, the Company Charter Holdings can incur additional debt under the leverage
had borrowing availability under the credit facilities of $804 mil- ratio of 8.75 to 1.0, there is no default under Charter Holdings’
lion, none of which was restricted due to covenants. Continued indentures and other specified tests are met. For the quarter
access to the Company’s credit facilities is subject to the ended December 31, 2004, there was no default under Charter
Company remaining in compliance with the applicable cove- Holdings’ indentures and other specified tests were met. In
nants of these credit facilities, including covenants tied to the addition, Charter Holdings met the leverage ratio of 8.75 to 1.0
Company’s operating performance. If the Company’s operating based on December 31, 2004 financial results. As a result,
performance results in non-compliance with these covenants, or distributions from Charter Holdings to Charter or Charter
if any of certain other events of non-compliance under these Holdco are not currently restricted. Such distributions will again
credit facilities or indentures governing the Company’s debt be restricted, however, if Charter Holdings fails to meet its
occurs, funding under the credit facilities may not be available leverage ratio test. In the past, Charter Holdings has from time
and defaults on some or potentially all of the Company’s debt to time failed to meet this leverage ratio test and there can be
obligations could occur. An event of default under the covenants no assurance that Charter Holdings will satisfy this test in the
governing any of the Company’s debt instruments could result future.
in the acceleration of its payment obligations under that debt During periods when such distributions are restricted, the
and, under certain circumstances, in cross-defaults under its indentures governing the Charter Holdings notes permit Charter
other debt obligations, which could have a material adverse Holdings and its subsidiaries to make specified investments in
effect on the Company’s consolidated financial condition or Charter Holdco or Charter, up to an amount determined by a
results of operations. formula, as long as there is no default under the indentures. As
The Charter Operating credit facilities require the Com- of December 31, 2004, Charter Holdco had $106 million in cash
pany to redeem the CC V Holdings notes within 45 days after on hand and was owed $29 million in intercompany loans from
the first date that the Charter Holdings leverage ratio is less its subsidiaries, which were available to pay interest on Charter’s
than 8.75 to 1.0. In satisfaction of this requirement, CC V 4.75% convertible senior notes, which is expected to be
Holdings, LLC has called for redemption all of its outstanding approximately $7 million in 2005. In addition, Charter has
notes, at 103.958% of principal amount, plus accrued and unpaid $144 million of governmental securities pledged as security for
interest to the date of redemption, which is expected to be the six interest payments on Charter’s 5.875% convertible senior
March 14, 2005. The total cost of the redemption including notes.
accrued and unpaid interest is expected to be $122 million. The
Sale of Assets
Company intends to fund the redemption with borrowings
In March 2004, the Company closed the sale of certain cable
under its credit facilities.
systems in Florida, Pennsylvania, Maryland, Delaware and West
Specific Limitations Virginia to Atlantic Broadband Finance, LLC. The Company
Charter’s ability to make interest payments on its convertible closed the sale of an additional cable system in New York to
senior notes, and, in 2006 and 2009, to repay the outstanding Atlantic Broadband Finance, LLC in April 2004. These transac-
principal of its convertible senior notes, will depend on its ability tions resulted in a $104 million pretax gain recorded as a gain
to raise additional capital and/or on receipt of payments or on sale of assets in the Company’s consolidated statements of
distributions from Charter Holdco or its subsidiaries, including operations. Subject to post-closing contractual adjustments, the
CCH II, LLC (‘‘CCH II’’), CCO Holdings, LLC (‘‘CCO total net proceeds from the sale of all of these systems were
Holdings’’) and Charter Operating. The indentures governing approximately $733 million. The proceeds received to date were
the CCH II notes, CCO Holdings notes, and Charter Operating used to repay a portion of amounts outstanding under the
notes, however, restrict these entities and their subsidiaries from Company’s credit facilities.
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