Charter 2006 Annual Report Download - page 58

CHARTER COMMUNICATIONS, INC. 2006 FORM 10-K
ability to raise additional capital and/or on receipt of payments plated distribution. In the past, Charter Holdings has from time
or distributions from Charter Holdco and its subsidiaries. As of to time failed to meet this leverage ratio test. There can be no
December 31, 2006, Charter Holdco was owed $3 million in assurance that Charter Holdings will satisfy these tests at the
intercompany loans from its subsidiaries and had $8 million in time of the contemplated distribution. During periods in which
cash, which were available to pay interest and principal on distributions are restricted, the indentures governing the Charter
Charter’s convertible senior notes. In addition, Charter has Holdings notes permit Charter Holdings and its subsidiaries to
$50 million of U.S. government securities pledged as security for make specified investments (that are not restricted payments) in
the semi-annual interest payments on Charter’s convertible Charter Holdco or Charter, up to an amount determined by a
senior notes scheduled in 2007. CCHC also holds $450 million formula, as long as there is no default under the indentures.
of Charter’s convertible senior notes. As a result, if CCHC In addition to the limitation on distributions under the
continues to hold those notes, CCHC will receive interest various indentures discussed above, distributions by our subsidi-
payments on the convertible senior notes from the pledged aries may be limited by applicable law. See ‘‘Risk Factors —
government securities. The cumulative amount of interest Because of our holding company structure, our outstanding
payments expected to be received by CCHC may be available notes are structurally subordinated in right of payment to all
to be distributed to pay interest on the outstanding $413 million liabilities of our subsidiaries. Restrictions in our subsidiaries’ debt
of the convertible senior notes due in 2008 and May 2009, instruments and under applicable law limit their ability to
although CCHC may use those amounts for other purposes. provide funds to us or our various debt issuers.’’
Distributions by Charter’s subsidiaries to a parent company Access to Capital
(including Charter, Charter Holdco and CCHC) for payment of Our significant amount of debt could negatively affect our ability
principal on parent company notes, are restricted under the to access additional capital or the pricing or terms under which
indentures governing the CIH notes, CCH I notes, CCH II such capital might be available in the future. Additionally, our
notes, CCO Holdings notes and Charter Operating notes unless ability to incur additional debt may be limited by the restrictive
there is no default under the applicable indenture and each covenants in our indentures and credit facilities. No assurances
applicable subsidiary’s leverage ratio test is met at the time of can be given that we will not experience liquidity problems if
such distribution, and, in the case of such distributions by we do not obtain sufficient additional financing on a timely basis
Charter Operating for payment of principal on a portion of the as our debt becomes due, because of adverse market conditions,
outstanding CCO Holdings notes, other specified tests are met. increased competition, or other unfavorable events. If, at any
For the quarter ended December 31, 2006, there was no default time, additional capital or borrowing capacity is required beyond
under any of these indentures, and each such subsidiary met its amounts internally generated or available under our credit
applicable leverage ratio tests based on December 31, 2006 facilities, or through additional debt or equity financings, we
financial results. Such distributions would be restricted, however, would consider:
if any such subsidiary fails to meet these tests at the time of the
(issuing equity that would significantly dilute existing
contemplated distribution. In the past, certain subsidiaries have
shareholders;
from time to time failed to meet their leverage ratio test. There
can be no assurance that they will satisfy these tests at the time (issuing convertible debt or other debt securities that may
of the contemplated distribution. Distributions by Charter have structural or other priority over our existing notes and
Operating for payment of principal on parent company notes may also, in the case of convertible debt, significantly dilute
are further restricted by the covenants in the credit facilities. Charter’s existing shareholders;
Distributions by CIH, CCH I, CCH II, CCO Holdings and
(further reducing our expenses and capital expenditures,
Charter Operating to a parent company for payment of parent which may impair our ability to increase revenue and grow
company interest are permitted if there is no default under the operating cash flows;
aforementioned indentures, and in the case of such distributions
by Charter Operating for payment of interest on a portion of (selling assets; or
the outstanding CCO Holdings notes, Charter Operating’s (requesting waivers or amendments with respect to our
leverage ratio and other specified tests are met. credit facilities, the availability and terms of which would
The indentures governing the Charter Holdings notes be subject to negotiation; and cannot be assured.
permit Charter Holdings to make distributions to Charter
If the above strategies are not successful, we could be
Holdco for payment of interest or principal on the convertible
forced to restructure our obligations or seek bankruptcy protec-
senior notes, only if, after giving effect to the distribution,
tion. In addition, if we need to raise additional capital through
Charter Holdings can incur additional debt under the leverage
the issuance of equity or find it necessary to engage in a
ratio of 8.75 to 1.0, there is no default under Charter Holdings’
recapitalization or other similar transaction, our shareholders
indentures and other specified tests are met. For the quarter
could suffer significant dilution and our noteholders might not
ended December 31, 2006, there was no default under Charter
receive the full principal and interest payments to which they
Holdings’ indentures, and the other specified tests were met.
are contractually entitled.
Such distributions would be restricted, however, if Charter
Holdings fails to meet these tests at the time of the contem-
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