Apollo plans to own most of Charter after bankruptcy: sources

NEW YORK Thu Mar 19, 2009 4:05pm EDT

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NEW YORK (Reuters) - Private equity firm Apollo Group is planning to take ownership of most of Charter Communications Inc (CHTR.O) through the cable company's reorganization in bankruptcy court, according to three sources familiar with the situation.

Apollo, which has purchased Charter's debt, plans to own the majority of its equity following the bankruptcy restructuring, which includes a preplanned reorganization of its debt and an equity rights offering, the sources said.

Charter said on February 12 it planned for a restructuring that included filing for bankruptcy. On March 16, it said the bankruptcy filing was on track to be on or before April 1.

A spokeswoman for Charter and a spokesman for Apollo declined to comment.

Apollo purchased the bonds, and in bankruptcy court the debt will be swapped for equity in the new company, the sources said. Apollo, which took part in debtholder negotiations with the company, will be able to increase its stake after a rights offering that will take place when Charter emerges from bankruptcy.

Paul Allen, the Microsoft Corp (MSFT.O) co-founder who has controlled the company, will own about 3 percent in equity but retain control through a 35 percent voting stake, according to an SEC filing from February. His equity stake could increase to about 7 percent through the conversion of additional warrants, the filing said.

Allen was able to retain the voting rights because of a clause in the bank loan agreements that would have allowed the banks to reprice the company's bank debt at a much higher rate if there had been a change of control in the company, two sources said.

Another source said Allen could have taken only equity in the company, but decided to diversify with a mixture of stock and warrants.

A spokesman for Vulcan Capital, Allen's investment vehicle, declined to comment.

According to the company, the reorganization plan includes expectations for the shares to be listed on Nasdaq.

But longer-term plans for the company after it exits bankruptcy remained unclear. While a different source who was familiar with Apollo's thinking said the private equity firm is happy with the company's current management, two sources said an eventual breakup of the company is a possibility.

Under the restructuring plan, the company, which had about $21 billion in debt in September, will reduce the debt by about $8 billion.

The so-called prearranged bankruptcy, in which bondholders and the company negotiate terms before the bankruptcy filing, could shorten the length of the bankruptcy to as little as three months, analysts have said.

Charter's equity value has plunged to as low as $21 million this week from around $5 billion in 2001. It competes with other large cable companies, including Comcast Corp (CMCSA.O) and Time Warner Cable Inc (TWC.N).

(Additional reporting by Yinka Adegoke; editing by Jeffrey Benkoe)

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