Charter Communications is likely to significantly increase the size of its proposed tender offer/new issue, according to people close to the deal. At least one said an additional $1 billion could be tacked on to the deal. Charter, one of the most visible names in high yield, is still struggling under a heavy debt burden, and therefore the success of the deal will be seen as an important indication of the market's appetite for high-yield paper. "Charter is a huge part of a lot of the indexes, and it's a name that everybody's familiar with. Also, it trades at a discount and there are not a lot of discount bonds out there so everybody has a keen interest in what happens," says Tom Parker, portfolio manager at Barclays Global Investors. Parker declines to comment on whether he would participate in a new deal.
Just over a week ago, Charter announced that it would issue $1.7 billion of senior notes. Exact terms of the deal have not yet been disclosed. One analyst says the deal would likely come at an attractive yield compared to what is available in the market--probably 81/2-9%. Proceeds will be used to buy back most of the company's $1.38 billion in convertible bonds, $285 million in straight bonds and $500 million in bank debt. A larger issue would be used to buy back more of the straight bonds, says a person close to the deal.
"I don't see a problem with the deal getting done, and I would not be surprised to see the deal upsized," says Eric Lee, analyst at Deutsche Bank. Lee says he has spoken with a number of bondholders who have expressed interest in a new deal that would give them more seniority versus the outstanding bonds.
The cable company, controlled by Microsoft Corp. co-founder Paul Allen, is the seventh-largest issuer in the high-yield market, and the largest issuer that is not a fallen angel. Charter also offers investors a rare opportunity to pick up decent yield. Its benchmark issue, the $1.5 billion 8 5/8% notes of '09 (CCC-/Ca), yielded 13.64% at last Tuesday's close, versus an average yield-to-worst of 8.7% for the market as a whole, according to Merrill Lynch data.
Barclays' Parker says that an upsized deal would likely be a modest positive for the credit. "The more they take out, the more you say the liquidity's fine, but they ultimately need to get their leverage down," he says.
A call to Eloise Schmitz, acting treasurer at Charter, was returned by David Andersen, a Charter spokesman, who declined to comment. Ashok Nayyar, a banker at Citigroup, which will lead the deal, referred calls to Danielle Romero, a firm spokeswoman, who declined to comment, citing 144a restrictions.
