Charter 2010 Annual Report Download - page 74

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Restrictions on Liens
Charter Operating and its restricted subsidiaries are not permitted to
grant liens senior to the liens securing the Charter Operating notes,
other than permitted liens, on their assets to secure indebtedness or
other obligations, if, after giving effect to such incurrence, the senior
secured leverage ratio (generally, the ratio of obligations secured
by first priority liens to four times the last quarterly EBITDA, as
defined, for the most recent fiscal quarter for which internal financial
reports are available) would exceed 3.75 to 1.0. e restrictions
on liens for each of the other note issuers only applies to liens on
assets of the issuers themselves and does not restrict liens on assets
of subsidiaries. With respect to all of the note issuers, permitted
liens include liens securing indebtedness and other obligations under
credit facilities (subject to specified limitations in the case of Charter
Operating), liens securing the purchase price of financed new assets,
liens securing indebtedness of up to $50 million (in the case of CCO
Holdings notes, the greater of $50 million and 1.0% of consolidated
net tangible assets) and other specified liens.
Restrictions on the Sale of Assets; Mergers
e note issuers are generally not permitted to sell all or substantially
all of their assets or merge with or into other companies unless their
leverage ratio after any such transaction would be no greater than
their leverage ratio immediately prior to the transaction, or unless
after giving effect to the transaction, leverage would be below the
applicable leverage ratio for the applicable issuer, no default exists, and
the surviving entity is a U.S. entity that assumes the applicable notes.
e note issuers and their restricted subsidiaries may generally
not otherwise sell assets or, in the case of restricted subsidiaries,
issue equity interests, in excess of $100 million unless they receive
consideration at least equal to the fair market value of the assets or
equity interests, consisting of at least 75% in cash, assumption of
liabilities, securities converted into cash within 60 days, or productive
assets. e note issuers and their restricted subsidiaries are then
required within 365 days after any asset sale either to use or commit
to use the net cash proceeds over a specified threshold to acquire
assets used or useful in their businesses or use the net cash proceeds
to repay specified debt, or to offer to repurchase the issuer’s notes
with any remaining proceeds.
Restrictions on Sale and Leaseback Transactions
e note issuers and their restricted subsidiaries may generally
not engage in sale and leaseback transactions unless, at the time of
the transaction, the applicable issuer could have incurred secured
indebtedness under its leverage ratio test in an amount equal to the
present value of the net rental payments to be made under the lease,
and the sale of the assets and application of proceeds is permitted by
the covenant restricting asset sales.
Prohibitions on Restricting Dividends
e note issuers’ restricted subsidiaries may generally not enter into
arrangements involving restrictions on their ability to make dividends
or distributions or transfer assets to the applicable note issuer unless
those restrictions with respect to financing arrangements are on terms
that are no more restrictive than those governing the credit facilities
existing when they entered into the applicable indentures or are
not materially more restrictive than customary terms in comparable
financings and will not materially impair the applicable note issuers’
ability to make payments on the notes.
Affiliate Transactions
e indentures also restrict the ability of the note issuers and their
restricted subsidiaries to enter into certain transactions with affiliates
involving consideration in excess of $15 million ($25 million in
the case of CCO Holdings notes) without a determination by the
board of directors of the applicable note issuer that the transaction
complies with this covenant, or transactions with affiliates involving
over $50 million ($100 million in the case of CCO Holdings notes)
without receiving an opinion as to the fairness to the holders of such
transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing.
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e indentures of our subsidiaries include various events of default,
including cross acceleration provisions. Under these provisions, a
failure by any of the issuers or any of their restricted subsidiaries
to pay at the final maturity thereof the principal amount of other
indebtedness having a principal amount of $100 million or more
(or any other default under any such indebtedness resulting in its
acceleration) would result in an event of default under the indenture
governing the applicable notes. As a result, an event of default
related to the failure to repay principal at maturity or the acceleration
of the indebtedness under the CCH II notes, CCO Holdings notes,
CCO Holdings credit facility, Charter Operating notes or the
Charter Operating credit facilities could cause cross-defaults under
our subsidiaries’ indentures.