Charter 2004 Annual Report Download - page 60

CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
Charter Holdings’ restricted subsidiaries may generally not The indenture governing the CCH II notes contains
enter into restrictions on their ability to make dividends or restrictive covenants that limit certain transactions or activities
distributions or transfer assets to Charter Holdings on terms that by CCH II and its restricted subsidiaries, including the cove-
are materially more restrictive than those governing their debt, nants summarized below. Substantially all of CCH II’s direct and
lien, asset sale, lease and similar agreements existing when they indirect subsidiaries are currently restricted subsidiaries.
entered into the indentures, unless those restrictions are on The covenant in the indenture governing the CCH II notes
customary terms that will not materially impair Charter Hold- that restricts incurrence of debt and issuance of preferred stock
ings’ ability to repay the high-yield notes. permits CCH II and its subsidiaries to incur or issue specified
The restricted subsidiaries of Charter Holdings are generally amounts of debt or preferred stock, if, after giving effect to the
not permitted to guarantee or pledge assets to secure debt of incurrence, CCH II could meet a leverage ratio (ratio of
Charter Holdings, unless the guarantying subsidiary issues a consolidated debt to four times EBITDA from the most recent
guarantee of the notes of comparable priority and tenor, and fiscal quarter for which internal financial reports are available) of
waives any rights of reimbursement, indemnity or subrogation 5.5 to 1.0.
arising from the guarantee transaction for at least one year. In addition, regardless of whether the leverage ratio could
The indentures also restrict the ability of Charter Holdings be met, so long as no default exists or would result from the
and its restricted subsidiaries to enter into certain transactions incurrence or issuance, CCH II and its restricted subsidiaries are
with affiliates involving consideration in excess of $15 million permitted to incur or issue:
without a determination by the board of directors of Charter (up to $9.75 billion of debt under credit facilities, including
Holdings that the transaction is on terms no less favorable than debt under credit facilities outstanding on the issue date of
arms length, or transactions with affiliates involving over the CCH II notes,
$50 million without receiving an independent opinion as to the
(up to $75 million of debt incurred to finance the purchase
fairness of the transaction to the holders of the Charter
or capital lease of new assets,
Holdings notes.
(up to $300 million of additional debt for any purpose, and
CCH II, LLC Notes
In September 2003, CCH II and CCH II Capital Corp. jointly (other items of indebtedness for specific purposes such as
issued approximately $1.6 billion total principal amount of intercompany debt, refinancing of existing debt, and interest
10.25% senior notes due 2010. The CCH II notes are general rate swaps to provide protection against fluctuation in
unsecured obligations of CCH II and CCH II Capital Corp. interest rates.
They rank equally with all other current or future The restricted subsidiaries of CCH II are generally not
unsubordinated obligations of CCH II and CCH II Capital Corp. permitted to issue debt securities contractually subordinated to
The CCH II notes are structurally subordinated to all obliga- other debt of the issuing subsidiary or preferred stock, in either
tions of subsidiaries of CCH II, including the CCO Holdings case in any public or Rule 144A offering.
notes, the Renaissance notes, the CC V Holdings notes, the The CCH II indenture permits CCH II and its restricted
Charter Operating credit facilities and the Charter Operating subsidiaries to incur debt under one category, and later reclassify
notes. that debt into another category. Our and our subsidiaries’ credit
Interest on the CCH II notes accrues at 10.25% per annum agreements generally impose more restrictive limitations on
and is payable semi-annually in arrears on each March 15 and incurring new debt than the CCH II indenture, so we and our
September 15, commencing on March 15, 2004. subsidiaries that are subject to credit agreements are not
At any time prior to September 15, 2006, the issuers of the permitted to utilize the full debt incurrence that would
CCH II notes may redeem up to 35% of the total principal otherwise be available under the CCH II indenture covenants.
amount of the CCH II notes on a pro rata basis at a redemption Generally, under the CCH II indenture, CCH II and its
price equal to 110.25% of the principal amount of CCH II notes restricted subsidiaries are permitted to pay dividends on equity
redeemed, plus any accrued and unpaid interest. interests, repurchase interests, or make other specified restricted
On or after September 15, 2008, the issuers of the CCH II payments only if CCH II can incur $1.00 of new debt under the
notes may redeem all or a part of the notes at a redemption leverage ratio test, which requires that CCH II meet a 5.5 to 1.0
price that declines ratably from the initial redemption price of leverage ratio after giving effect to the transaction, and if no
105.125% to a redemption price on or after September 15, 2009 default exists or would exist as a consequence of such
of 100% of the principal amount of the CCH II notes redeemed, incurrence. If those conditions are met, restricted payments in a
plus, in each case, any accrued and unpaid interest. total amount of up to 100% of CCH II’s consolidated EBITDA,
In the event of specified change of control events, CCH II as defined, minus 1.3 times its consolidated interest expense,
must offer to purchase the outstanding CCH II notes from the plus 100% of new cash and non-cash equity proceeds received
holders at a purchase price equal to 101% of the total principal by CCH II and not allocated to the debt incurrence covenant,
amount of the notes, plus any accrued and unpaid interest. all cumulatively from the fiscal quarter commenced July 1, 2003,
plus $100 million.
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