Charter 2004 Annual Report Download - page 65

CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
making investments, except specified permitted investments, or debt, or to offer to repurchase the Charter Operating notes with
creating new unrestricted subsidiaries, if there is a default under any remaining proceeds.
the indenture or if Charter Operating could not incur $1.00 of Charter Operating and its restricted subsidiaries may
new debt under the 4.25 to 1.0 leverage ratio test described generally not engage in sale and leaseback transactions unless, at
above after giving effect to the transaction. the time of the transaction, Charter Operating could have
Permitted investments include: incurred secured indebtedness in an amount equal to the present
value of the net rental payments to be made under the lease,
(investments by Charter Operating and its restricted subsidi- and the sale of the assets and application of proceeds is
aries in Charter Operating and in other restricted subsidiar- permitted by the covenant restricting asset sales.
ies, or entities that become restricted subsidiaries as a result Charter Operating’s restricted subsidiaries may generally not
of the investment, enter into restrictions on their ability to make dividends or
(investments aggregating up to 100% of new cash equity distributions or transfer assets to Charter Operating on terms
proceeds received by Charter Operating since April 27, that are materially more restrictive than those governing their
2004 to the extent the proceeds have not been allocated to debt, lien, asset sale, lease and similar agreements existing when
the restricted payments covenant described above, Charter Operating entered into the indenture governing the
Charter Operating senior second-lien notes unless those restric-
(other investments up to $750 million outstanding at any tions are on customary terms that will not materially impair
time, and Charter Operating’s ability to repay the Charter Operating
(certain specified additional investments, such as investments notes.
in customers and suppliers in the ordinary course of The restricted subsidiaries of Charter Operating are gener-
business and investments received in connection with ally not permitted to guarantee or pledge assets to secure debt
permitted asset sales. of Charter Operating, unless the guarantying subsidiary issues a
Charter Operating and its restricted subsidiaries are not guarantee of the notes of comparable priority and tenor, and
permitted to grant liens senior to the liens securing the Charter waives any rights of reimbursement, indemnity or subrogation
Operating notes, other than permitted liens, on their assets to arising from the guarantee transaction for at least one year.
secure indebtedness or other obligations, if, after giving effect to The indenture also restricts the ability of Charter Operating
such incurrence, the senior secured leverage ratio (generally, the and its restricted subsidiaries to enter into certain transactions
ratio of obligations secured by first priority liens to four times with affiliates involving consideration in excess of $15 million
EBITDA, as defined, from the most recent fiscal quarter for without a determination by the board of directors that the
which internal financial reports are available) would exceed 3.75 transaction is on terms no less favorable than arms-length, or
to 1.0. Permitted liens include liens securing indebtedness and transactions with affiliates involving over $50 million without
other obligations under permitted credit facilities, liens securing receiving an independent opinion as to the fairness of the
the purchase price of new assets, liens securing amounts up to transaction to the holders of the Charter Operating notes.
$50 million, and liens incurred in the ordinary course of Charter Operating and its restricted subsidiaries are gener-
business. ally not permitted to transfer equity interests in restricted
Charter Operating and Charter Communications Operating subsidiaries unless the transfer is of all of the equity interests in
Capital Corp., its co-issuer, are generally not permitted to sell all the restricted subsidiary or the restricted subsidiary remains a
or substantially all of their assets or merge with or into other restricted subsidiary and net proceeds of the equity sale are
companies unless their leverage ratio after any such transaction applied in accordance with the asset sales covenant.
would be no greater than their leverage ratio immediately prior Until the guarantee and pledge date, the Charter Operating
to the transaction, or unless Charter Operating and its subsidiar- notes are secured by a second-priority lien on all of Charter
ies could incur $1.00 of new debt under the 4.25 to 1.0 leverage Operating’s assets that secure the obligations of Charter Operat-
ratio test described above after giving effect to the transaction, ing under the Charter Operating credit facility and specified
no default exists, and the surviving entity is a U.S. entity that related obligations. The collateral secures the obligations of
assumes the Charter Operating notes. Charter Operating with respect to the 8% senior second-lien
Charter Operating and its restricted subsidiaries generally notes due 2012 and the 83
/8% senior second-lien notes due 2014
may not otherwise sell assets or, in the case of restricted on a ratable basis. The collateral consists of substantially all of
subsidiaries, issue equity interests, unless they receive considera- Charter Operating’s assets in which security interests may be
tion at least equal to the fair market value of the assets or equity perfected under the Uniform Commercial Code by filing a
interests, consisting of at least 75% in cash, assumption of financing statement (including capital stock and intercompany
liabilities, securities converted into cash within 60 days or obligations), including, but not limited to:
productive assets. Charter Operating and its restricted subsidiar-
(all of the capital stock of all of Charter Operating’s direct
ies are then required within 365 days after any asset sale either subsidiaries, including, but not limited to, CCO NR
to commit to use the net cash proceeds over a specified Holdings, LLC; and
threshold to acquire assets, including current assets, used or
useful in their businesses or use the net cash proceeds to repay
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