Charter Communications rallied a couple of points despite the announcement that an additional $1.4 billion of franchise costs and $1.2 billion in deferred income tax liability should have been recorded. Market players said the bank debt traded up to the 83-84 range from the 81-82 context because the news removed some of the uncertainty that has surrounded investigations into Charter's accounts. In addition, market players said the news had a net zero effect on the company's cash position. "It doesn't have any impact on cash flow," noted Eric Geil, Standard & Poor's analyst. David Andersen, Charter spokesman, explained that the franchise costs were actually on the asset side of the company's balance sheet versus the tax which counted as liabilities. "They cancel each other out," he said.
The announcement was in the interests of full disclosure and had nothing to do with the grand jury subpoena, noted Andersen. Charter received a subpoena from the U.S. district attorney's office for eastern Missouri in regards to its current and past customers, and its policies and procedures relating to the capitalization or expense of various costs in August. While the company is fully cooperating with the investigation, Andersen said there was no way of knowing when it would be completed.
Going forward, Charter continues to have operational concerns that are compounded by the company's highly leveraged situation. The company will have to turn around its trend of lower subscriber numbers, noted one dealer. Andersen admitted that Charter's subscriber base has been hurt by the economy, the company's tightening credit policies, and the growth of satellite. "We're not alone in that respect," he added, referring to the cable industry as a whole. Still, when it comes to Charter, its next test will be whether the company is able to continue to maintain its EBITDA positive requirement, said the dealer.