Charter 2006 Annual Report Download - page 33

CHARTER COMMUNICATIONS, INC. 2006 FORM 10-K
repay our debt, operate our business, respond to competitive Charter Operating credit facilities. Several of our subsidiaries are
challenges, or fund our other liquidity and capital needs. also obligors and guarantors under other senior high yield notes.
Although we and our subsidiaries have been able to raise funds Our convertible notes are structurally subordinated in right of
through issuances of debt in the past, we may not be able to payment to all of the debt and other liabilities of our
access additional sources of external liquidity on similar terms, if subsidiaries. As of December 31, 2006, our total debt was
at all. We expect that cash on hand, cash flows from operating approximately $19.1 billion, of which approximately $18.7 billion
activities, and the amounts available under our credit facilities was structurally senior to our convertible notes.
will be adequate to meet our cash needs through 2007. We In the event of bankruptcy, liquidation, or dissolution of
believe that cash flows from operating activities and amounts one or more of our subsidiaries, that subsidiary’s assets would
available under our credit facilities may not be sufficient to fund first be applied to satisfy its own obligations, and following such
our operations and satisfy our interest and principal repayment payments, such subsidiary may not have sufficient assets
obligations in 2008 and will not be sufficient to fund such needs remaining to make payments to its parent company as an equity
in 2009 and beyond. See ‘‘Part II. Item 7. Management’s holder or otherwise. In that event:
Discussion and Analysis of Financial Condition and Results of (the lenders under Charter Operating’s credit facilities,
Operations — Liquidity and Capital Resources.’’ whose interests are secured by substantially all of our
operating assets, will have the right to be paid in full before
Because of our holding company structure, our outstanding notes are
us from any of our subsidiaries’ assets; and
structurally subordinated in right of payment to all liabilities of our
subsidiaries. Restrictions in our subsidiaries’ debt instruments and (the holders of preferred membership interests in our
under applicable law limit their ability to provide funds to us or our subsidiary, CC VIII, would have a claim on a portion of its
various debt issuers. assets that may reduce the amounts available for repayment
to holders of our outstanding notes.
Our sole assets are our equity interests in our subsidiaries. Our
operating subsidiaries are separate and distinct legal entities and All of our and our subsidiaries’ outstanding debt is subject to change
are not obligated to make funds available to us for payments on of control provisions. We may not have the ability to raise the funds
our notes or other obligations in the form of loans, distributions, necessary to fulfill our obligations under our indebtedness following a
or otherwise. Our subsidiaries’ ability to make distributions to us change of control, which would place us in default under the
or the applicable debt issuers to service debt obligations is applicable debt instruments.
subject to their compliance with the terms of their credit
We may not have the ability to raise the funds necessary to
facilities and indentures, and restrictions under applicable law.
fulfill our obligations under our and our subsidiaries’ notes and
See ‘‘Part II. Item 7. Management’s Discussion and Analysis of
credit facilities following a change of control. Under the
Financial Condition and Results of Operations — Liquidity and
indentures governing our and our subsidiaries’ notes, upon the
Capital Resources — Limitations on Distributions’’ and ‘‘— Debt
occurrence of specified change of control events, we are
Covenants.’’ Under the Delaware Limited Liability Company
required to offer to repurchase all of these notes. However,
Act, our subsidiaries may only make distributions if they have
Charter and our subsidiaries may not have sufficient funds at the
‘‘surplus’’ as defined in the act. Under fraudulent transfer laws,
time of the change of control event to make the required
our subsidiaries may not pay dividends if they are insolvent or
repurchase of these notes, and our subsidiaries are limited in
are rendered insolvent thereby. The measures of insolvency for
their ability to make distributions or other payments to fund any
purposes of these fraudulent transfer laws vary depending upon
required repurchase. In addition, a change of control under our
the law applied in any proceeding to determine whether a
credit facilities would result in a default under those credit
fraudulent transfer has occurred. Generally, however, an entity
facilities. Because such credit facilities and our subsidiaries’ notes
would be considered insolvent if:
are obligations of our subsidiaries, the credit facilities and our
(the sum of its debts, including contingent liabilities, was subsidiaries’ notes would have to be repaid by our subsidiaries
greater than the fair saleable value of all its assets; before their assets could be available to us to repurchase our
(the present fair saleable value of its assets was less than the convertible senior notes. Our failure to make or complete a
amount that would be required to pay its probable liability change of control offer would place us in default under our
on its existing debts, including contingent liabilities, as they convertible senior notes. The failure of our subsidiaries to make
become absolute and mature; or a change of control offer or repay the amounts accelerated
under their notes and credit facilities would place them in
(it could not pay its debts as they became due. default.
While we believe that our relevant subsidiaries currently Paul G. Allen and his affiliates are not obligated to purchase equity
have surplus and are not insolvent, there can be no assurance from, contribute to, or loan funds to us or any of our subsidiaries.
that these subsidiaries will be permitted to make distributions in
the future in compliance with these restrictions in amounts Paul G. Allen and his affiliates are not obligated to purchase
needed to service our indebtedness. Our direct or indirect equity from, contribute to, or loan funds to us or any of our
subsidiaries include the borrowers and guarantors under the subsidiaries.
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