Charter 2006 Annual Report Download - page 100

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2006 FORM 10-K
Notes to Consolidated Financial Statements (continued)
provisions, which cause adjustments to occur automatically In September 2006, CCHC and CCH II completed the
based on the occurrence of specified events to provide protec- exchange of $450 million principal amount of Charter’s out-
tion rights to holders of the notes. The conversion rate may also standing 5.875% senior convertible notes due 2009 for $188 mil-
be increased (but not to exceed 462 shares per $1,000 principal lion in cash, 45 million shares of Charter’s Class A common
amount of notes) upon a specified change of control transaction. stock valued at $68 million and $146 million principal amount
Additionally, Charter may elect to increase the conversion rate of 10.25% CCH II notes due 2010. The convertible notes
under certain circumstances when deemed appropriate, and received in the exchange are held by CCHC. The exchange
subject to applicable limitations of the NASDAQ stock market. between Charter and CCHC and CCH II resulted in a gain on
Holders who convert their notes prior to November 16, 2007 extinguishment of debt of approximately $20 million.
will receive an early conversion make whole amount in respect Charter Holdings Notes
of their notes, based on a proportional share of the portfolio of The Charter Holdings notes are senior debt obligations of
pledged securities described below, with specified adjustments. Charter Holdings and Charter Communications Capital Corpo-
Charter Holdco used a portion of the proceeds from the ration (‘‘Charter Capital’’). They rank equally with all other
sale of the 5.875% convertible senior notes to purchase a current and future unsecured, unsubordinated obligations of
portfolio of U.S. government securities in an amount which we Charter Holdings and Charter Capital. They are structurally
believe will be sufficient to make the first six interest payments subordinated to the obligations of Charter Holdings’ subsidiaries,
on the notes. These government securities were pledged to us as including the CIH notes, the CCH I notes, CCH II notes, the
security for a mirror note issued by Charter Holdco to Charter CCO Holdings notes, the Charter Operating notes, and the
and pledged to the trustee under the indenture governing the Charter Operating credit facilities.
notes as security for our obligations thereunder. Such securities Except for the 8.250% notes due April 1, 2007, the
are being used to fund the semi-annual interest payments on 10.00% notes due April 1, 2009, the 10.75% notes due
Charter’s convertible senior notes scheduled in 2007. CCHC October 1, 2009 and the 9.625% notes due November 15, 2009
also holds an additional $450 million of Charter’s convertible which notes may not be redeemed prior to their respective
senior notes. As a result, if CCHC continues to hold those maturity dates, the Charter Holdings notes may be redeemed at
notes, CCHC will receive interest payments on the convertible the option of Charter Holdings on or after varying dates in 2006
senior notes from the pledged government securities. The and 2007, in each case at a premium. The optional redemption
cumulative amount of interest payments expected to be received price declines to 100% of the respective series’ principal amount,
by CCHC may be available to be distributed to pay interest on plus accrued and unpaid interest, on or after varying dates in
the outstanding $413 million of the convertible senior notes due 2007 through 2010.
in 2008 and May 2009, although CCHC may use those amounts In the event that a specified change of control event occurs,
for other purposes. The fair value of the pledged securities was Charter Holdings and Charter Capital must offer to repurchase
$49 million and $97 million at December 31, 2006 and 2005, any then outstanding notes at 101% of their principal amount or
respectively. accreted value, as applicable, plus accrued and unpaid interest, if
Upon a change of control and certain other fundamental any.
changes, subject to certain conditions and restrictions, Charter In March and June 2005, Charter Operating consummated
may be required to repurchase the notes, in whole or in part, at exchange transactions with a small number of institutional
100% of their principal amount plus accrued interest at the holders of Charter Holdings 8.25% senior notes due 2007
repurchase date. pursuant to which Charter Operating issued approximately
We may redeem the notes in whole or in part for cash at $333 million principal amount of new notes with terms identical
any time at a redemption price equal to 100% of the aggregate to Charter Operating’s 8.375% senior second lien notes due 2014
principal amount, plus accrued and unpaid interest, deferred in exchange for approximately $346 million of the Charter
interest, and liquidated damages, if any, but only if for any 20 Holdings 8.25% senior notes due 2007. The Charter Holdings
trading days in any 30 consecutive trading day period the notes received in the exchange were thereafter distributed to
closing price has exceeded 180% of the conversion price, if such Charter Holdings and cancelled. The exchanges resulted in a
30 trading day period begins prior to November 16, 2007, or gain on extinguishment of debt of approximately $10 million.
150% of the conversion price, if such 30 trading period begins In September 2005, Charter Holdings and its wholly owned
thereafter. Holders who convert notes that we have called for subsidiaries, CCH I and CIH, completed the exchange of
redemption shall receive, in addition to the early conversion approximately $6.8 billion total principal amount of outstanding
make whole amount, if applicable, the present value of the debt securities of Charter Holdings in a private placement for
interest on the notes converted that would have been payable CCH I and CIH new debt securities. The Charter Holdings
for the period from the later of November 17, 2007, and the notes received in the exchange were thereafter distributed to
redemption date, through the scheduled maturity date for the Charter Holdings and cancelled. The exchanges resulted in a
notes, plus any accrued deferred interest. gain on extinguishment of debt of approximately $490 million.
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