Charter 2007 Annual Report Download - page 94

In September 2006, CCHC and CCH II completed the
exchange of $450 million principal amount of Charter’s outstand-
ing 5.875% senior convertible notes due 2009 for $188 million in
cash, 45 million shares of Charter’s Class A common stock
valued at $68 million and $146 million principal amount of
10.25% CCH II notes due 2010. The convertible notes received
in the exchange held by CCHC, were transferred to Charter
Holdco in August 2007, and subsequently cancelled in November
2007. The exchange resulted in a gain on extinguishment of debt
of approximately $20 million for the year ended December 31,
2006, included in gain (loss) on extinguishment of debt and
preferred stock on the Company’s consolidated statements of
operations.
In October 2007, Charter Holdco completed a tender offer,
in which $364 million of Charter’s 5.875% convertible senior
notes due 2009 were accepted for $479 million of Charter’s
6.50% convertible senior notes due 2027. The 6.50% convertible
senior notes provide the holders with the right to require Charter
to repurchase some or all of the 6.50% convertible senior notes
for cash on October 1, 2012, 2017, and 2022 at a repurchase
price equal to the principal amount plus accrued interest. The
tender offer resulted in a loss on extinguishment of debt of
approximately $113 million for the year ended December 31,
2007, included in gain (loss) on extinguishment of debt and
preferred stock on the Company’s consolidated statements of
operations.
The 6.50% convertible senior notes are convertible into
Class A common stock at the conversion rate of 293.3868 shares
per $1,000 principal amount of notes which is equivalent to a
conversion price of approximately $3.41 per share, subject to
certain adjustments. The adjustments include anti-dilution provi-
sions, which cause adjustments to occur automatically based on
the occurrence of specified events. If certain transactions that
constitute a change of control occur on or prior to October 1,
2012, under certain circumstances, Charter will increase the
conversion rate by a number of additional shares for any conver-
sion of 6.50% convertible senior notes in connection with such
transactions. The conversion rate may also be increased (but not
to exceed 381 shares per $1,000 principal amount of notes) upon
a specified change of control transaction. Additionally, Charter
may elect to increase the conversion rate under certain circum-
stances when deemed appropriate, and subject to applicable
limitations of the NASDAQ Global Select Market.
Charter may redeem the 6.50% convertible senior notes in
whole or in part for cash at any time at a redemption price equal
to 100% of the principal amount, plus accrued and unpaid
interest, if any, but only if for any 20 trading days in any 30
consecutive trading day period the closing price has exceeded
180% of the conversion price provided such 30 trading day
period begins prior to October 1, 2010, or 150% of the conver-
sion price provided such 30 trading period begins thereafter and
before October 1, 2012, or at the redemption price regardless of
the closing price of Charter’s Class A common stock thereafter.
Holders who convert any 6.50% convertible senior notes prior to
October 1, 2012 that Charter has called for redemption shall
receive the present value of the interest on the notes converted
that would have been payable for the period from the redemp-
tion date to, but excluding, October 1, 2012.
Certain provisions of the Company’s 6.50% convertible
senior notes issued in October 2007 were considered embedded
derivatives for accounting purposes and were required to be
separately accounted for from the convertible senior notes. At
the time of issuance, the embedded derivative was valued at
approximately $131 million which was bifurcated from the
principal amount of the convertible senior notes and recorded in
other long-term liabilities. The convertible senior notes will
accrete to face value over five years (the date holders can first
require Charter to repurchase the notes) and the embedded
derivative will be marked to market with gains or losses recorded
as the change in value of derivatives on the Company’s consoli-
dated statement of operations.
Upon a change of control and certain other fundamental
changes, subject to certain conditions and restrictions, Charter
may be required to repurchase the notes, in whole or in part, at
100% of their principal amount plus accrued interest at the
repurchase date.
Charter Holdings Notes
The Charter Holdings notes are senior debt obligations of
Charter Holdings and Charter Communications Capital Corpora-
tion (“Charter Capital”). They rank equally with all other current
and future unsecured, unsubordinated obligations of Charter
Holdings and Charter Capital. They are structurally subordinated
to the obligations of Charter Holdings’ subsidiaries, including the
CIH notes, the CCH I notes, CCH II notes, the CCO Holdings
notes, the Charter Operating notes, and the Charter Operating
credit facilities.
Except for the 10.00% notes due April 1, 2009, the
10.75% notes due October 1, 2009 and the 9.625% notes due
November 15, 2009 which notes may not be redeemed prior to
their respective maturity dates, the Charter Holdings notes may
be redeemed at the option of Charter Holdings on or after
varying dates, in each case at a premium. The optional redemp-
tion price declines to 100% of the respective series’ principal
amount, plus accrued and unpaid interest, on or after varying
dates in 2008 through 2010.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Capital must offer to repurchase
any then outstanding notes at 101% of their principal amount or
accreted value, as applicable, plus accrued and unpaid interest, if
any.
In September 2006, Charter Holdings, CCH I and CCH II,
completed the exchange of approximately $797 million in total
principal amount of outstanding debt securities of Charter Hold-
ings for $250 million principal amount of new 10.25% CCH II
notes due 2013 and $462 million principal amount of 11% CCH
I notes due 2015. The Charter Holdings notes received in the
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CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K
Notes to Consolidated Financial Statements (continued)