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Charter Heads Higher On Equity Hopes

Charter Communications' paper is creeping higher and is expected to skyrocket if Paul Allen, the controlling shareholder and co-founder of Microsoft, decides for the company to issue equity.

Charter Communications' paper is creeping higher and is expected to skyrocket if Paul Allen, the controlling shareholder and co-founder of Microsoft, decides for the company to issue equity. Allen, the controlling sponsor of Charter through his Vulcan Capital private equity firm, has said he is considering an equity offering to finance the purchase of a piece or all of Adelphia Communications, which is being auctioned at the end of the month as part of its bankruptcy process.

"Management has said it would have an interest and he said he might inject some of his capital into the company," said one distressed analyst, referring to Allen. The analyst noted though Charter paper has been trading higher on this speculation, he expects its bonds will soar if it indeed participates. "It would be a total homerun for the bonds," he stated. Charter's 10% of '11s traded around 80 last week, up two points on the week. A call to Allen was referred to Ruby Wells, spokeswoman for Vulcan. She did not return a call by press time.

A move by Charter to decrease leverage would be a boon to investors. "Bondholders have participated in a myriad of debt offerings, and an equity issuance would take some pressure off them," said Aryeh Bourkoff, managing director and cable/satellite analyst at UBS. He added Charter faces a heavy debt redemption burden next year and needs to raise cash. "Available options include an over-equitized purchase of assets by Paul Allen, a rights offering or exchanges for debt instruments," he said. Bourkoff declined comment specifically on the Adelphia auction because UBS is advising Adelphia.

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