UPDATE 1-Charter tried to sell itself before bankruptcy- adviser

* Charter seeks approval for reorganization plan

* Former adviser says Charter tried to sell itself

* Tried to monetize tax assets in deal with Comcast

* Charter CEO says expects to remain CEO after bankruptcy

* Charter CEO says EBITDA is still seeing favorable growth (Adds CEO quotes)

By Yinka Adegoke and Emily Chasan

NEW YORK, July 21 (Reuters) - U.S. cable operator Charter Communications Inc CHTRQ.PK held talks to sell itself to private equity and separately held discussions to raise cash with Comcast Corp (CMCSA.O) and Time Warner (TWX.N) before filing for bankruptcy, a court heard on Tuesday.

Neil Smit, chief executive of Charter, told a U.S. bankruptcy court in Manhattan that his company tried to monetize its net operating losses (NOLs) in talks with Comcast and Time Warner last year in an initiative called 'Project Cosmos'. NOLs are attractive to investors and companies because they can offset the losses against taxes and reduce tax payments.

Charter was in court for the second day of a hearing to seek approval for the company's "prepackaged" bankruptcy reorganization plan.

Charter, which is controlled by Microsoft Corp (MSFT.O) co-founder Paul Allen, filed for bankruptcy protection in March, buckling under the weight of $21.7 billion in debt, but said at the time it had reached agreements with key stakeholders that would allow it to exit bankruptcy in a matter of months.

If Charter wins approval of the plan from Judge James Peck it would allow the company to shed more than $8 billion in debt while also reinstating about $11 billion of its senior bank debt at below-market interest rates upon its emergence from bankruptcy.

The company's senior bank lenders, led by JPMorgan Chase & Co (JPM.N), have been starkly opposed to the plan, claiming that Charter has violated its loan agreements and the bankruptcy reorganization plan would change the control of the company from Paul Allen, constituting a default that would make debt reinstatement impossible.

Smit said he warned Charter's board in February when Allen gave notice that he intended to exercise exchange rights on his shares from Class B to Class A. Such a move might have triggered a change in ownership clause said Smit.

"I told the board it would have a deleterious effect on our NOLs," Smit told the court. Charter's NOLs are tied to Allen's control and lose value if the company changes control.

Smit said he expects to remain chief executive after Charter emerges from bankruptcy and said that the company has continued to see "favorable" year-over-year growth in its earnings before interest, taxes, depreciation and amortization (EBITDA) since the first quarter.

Earlier in the day, a former senior financial adviser to Charter told the court the company tried to sell itself in the 18 months before it filed for bankruptcy.

Jim Millstein, former co-head of restructuring at Lazard who is now senior restructuring officer at the U.S. Treasury, testified that Charter had tried to sell the company to interested parties including private equity as early as summer 2007 and after that. He said he was not privy to the details of the talks but was aware of the results.

Millstein, who said he has been working with Charter on its bank and bond debt since 2002, also said the company had attempted to monetize its tax assets in 2008.

Charter's case has been closely watched in the restructuring industry as a test of the debt reinstatement concept, which has been rarely used but is supposed to be allowed under U.S. laws if the company has no other default under its debt agreements except for its bankruptcy filing.

If Charter, the fourth-largest U.S. cable operator, were unable to reinstate its debt at pre-bankruptcy levels, it would have to renegotiate with its banks and re-price the debt at significantly higher interest rates. The company's interest payments could increase by more than $500 million annually if that were to occur, according to court papers.

The case has also rankled some Charter shareholders who are disappointed the value of their equity was wiped out as part of the bankruptcy process which gives priority to debt holders.

Judge Peck acknowledged that he has received emails as part of a "letter-writing campaign" from some holders complaining about the court proceedings. The judge described the communications as "impermissible" to the proceedings but said he wanted both sides to be aware of the communications.

The case in re: Charter Communications Inc., U.S. Bankruptcy Court, Southern District of New York, No. 09-11435. (Reporting by Yinka Adegoke and Emily Chasan; Editing Bernard Orr)