July 21, 2009 / 7:02 PM / 10 years ago

Charter tried to sell itself before going bankrupt- adviser

* Charter seeks approval for reorganization plan

* Former adviser says Charter tried to sell itself

* Charter CEO to testify in bankruptcy court

By Yinka Adegoke and Emily Chasan

NEW YORK, July 21 (Reuters) - A former senior financial adviser to U.S. cable operator Charter Communications Inc CHTRQ.PK on Tuesday said the company tried to sell itself several times in the 18 months before it filed for bankruptcy.

Charter was in U.S. bankruptcy court in Manhattan for the second day of a hearing to seek approval for the company’s “prepackaged” bankruptcy reorganization plan.

Jim Millstein, former co-head of restructuring at Lazard who is now senior restructuring officer at the U.S. Treasury, testified on Tuesday 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. He said that such talks may have been thwarted by the beginning of a credit freeze since Charter was heavily leveraged.

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, 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, constituting a default that would make debt reinstatement impossible.

Millstein testified he believed the reorganization plan did not involve a change of control under the terms of the debt covenants.

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.

Charter’s Chief Executive Neil Smit is also expected to testify on Tuesday.

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

Judge Peck acknowledged that he has started receiving 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)

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