Charter 2007 Annual Report Download - page 55

been able to raise funds through issuances of debt in the past, we
may not be able to access additional sources of liquidity on
similar terms or pricing as those that are currently in place, or at
all. A continuation of the recent turmoil in the credit markets
and the general economic downturn could adversely impact the
terms and/or pricing when we need to raise additional liquidity.
Access to Capital
Our significant amount of debt could negatively affect our ability
to access additional capital in the future. Additionally, our ability
to incur additional debt may be limited by the restrictive
covenants in our indentures and credit facilities. No assurances
can be given that we will not experience liquidity problems if we
do not obtain sufficient additional financing on a timely basis as
our debt becomes due or because of adverse market conditions,
increased competition, or other unfavorable events. If, at any
time, additional capital or borrowing capacity is required beyond
amounts internally generated or available under our credit facili-
ties, or through additional debt or equity financings, we would
consider:
kissuing equity that would significantly dilute existing
shareholders;
kissuing convertible debt or some other securities that may
have structural or other priority over our existing notes and
may also, in the case of convertible debt, significantly dilute
Charter’s existing shareholders;
kfurther reducing our expenses and capital expenditures,
which may impair our ability to increase revenue and grow
operating cash flows;
kselling assets; or
krequesting waivers or amendments with respect to our credit
facilities, which may not be available on acceptable terms;
and cannot be assured.
If the above strategies were not successful, we could be
forced to restructure our obligations or seek protection under the
bankruptcy laws. In addition, if we need to raise additional
capital through the issuance of equity or find it necessary to
engage in a recapitalization or other similar transaction, our
shareholders could suffer significant dilution, including potential
loss of the entire value of their investment, and in the case of a
recapitalization or other similar transaction, our noteholders
might not receive principal and interest payments to which they
are contractually entitled.
Credit Facility Availability
Our ability to operate depends upon, among other things, our
continued access to capital, including credit under the Charter
Operating credit facilities. The Charter Operating credit facilities,
along with our indentures and the CCO Holdings credit facility,
contain certain restrictive covenants, some of which require us to
maintain specified leverage ratios, and meet financial tests, and
provide annual audited financial statements with an unqualified
opinion from our independent accountants. As of December 31,
2007, we were in compliance with the covenants under our
indentures and credit facilities, and we expect to remain in
compliance with those covenants for the next twelve months. As
of December 31, 2007, our potential availability under Charter
Operating’s revolving credit facility totaled approximately $1.0 bil-
lion, none of which was limited by covenant restrictions. Contin-
ued access to our revolving credit facility is subject to our
remaining in compliance with these covenants, including cove-
nants tied to Charter Operating’s leverage ratio and first lien
leverage ratio. If any event of non-compliance were to occur,
funding under the revolving credit facility may not be available
and defaults on some or potentially all of our debt obligations
could occur. An event of default under any of our debt instru-
ments could result in the acceleration of our payment obligations
under that debt and, under certain circumstances, in cross-
defaults under our other debt obligations, which could have a
material adverse effect on our consolidated financial condition
and results of operations.
Limitations on Distributions
As long as Charter’s convertible senior notes remain outstanding
and are not otherwise converted into shares of common stock,
Charter must pay interest on the convertible senior notes and
repay the principal amount. In October 2007, Charter Holdco
completed an exchange offer in which $364 million of Charter’s
5.875% convertible senior notes due November 2009 were
exchanged for $479 million of Charter’s 6.50% convertible senior
notes. Approximately $49 million of Charter’s 5.875% convertible
senior notes remain outstanding. Charter’s ability to make inter-
est payments on its convertible senior notes and to repay the
outstanding principal of its convertible senior notes will depend
on its ability to raise additional capital and/or on receipt of
payments or distributions from Charter Holdco and its subsidiar-
ies. As of December 31, 2007, Charter Holdco was owed
$123 million in intercompany loans from Charter Operating and
had $62 million in cash, which amounts were available to pay
interest and principal on Charter’s convertible senior notes.
Distributions by Charter’s subsidiaries to a parent company
(including Charter, Charter Holdco and CCHC) for payment of
principal on parent company notes are restricted under the
indentures governing the CIH notes, CCH I notes, CCH II notes,
CCO Holdings notes, Charter Operating notes, and under the
CCO Holdings credit facility, unless there is no default under the
applicable indenture and credit facility, and unless each applica-
ble subsidiary’s leverage ratio test is met at the time of such
distribution. For the quarter ended December 31, 2007, there was
no default under any of these indentures or credit facilities, and
each subsidiary met its applicable leverage ratio tests based on
December 31, 2007 financial results. Such distributions would be
restricted, however, if any such subsidiary fails to meet these tests
at the time of the contemplated distribution. In the past, certain
subsidiaries have 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 of the contemplated distribution. Distributions
by Charter Operating for payment of principal on parent
CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K
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