Charter Set for One of Biggest Junk-Debt Sales to Buy TWC

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Charter CEO ‘Comfortable’ With Price Paid for Time Warner

Charter Communications Inc.’s $55 billion deal to buy Time Warner Cable Inc. is setting up one of the biggest high-yield debt offerings ever.

The company has received financing commitments in excess of $31 billion to fund the purchase, Chief Financial Officer Christopher Winfrey said Tuesday in a conference call. That puts the size of the funding for the deal in the ranks of financings such as the $37.2 billion the purchasers of TXU Corp. got from banks in 2007 and the $24 billion provided for the takeover of First Data Corp. in the same year.

To help pay for the deal, John Malone’s Liberty Broadband Corp., will buy $5 billion of new Charter stock. Charter said in a regulatory filing that as much as $27.3 billion of new debt may be needed for the Time Warner purchase and for the takeover of Bright House Networks, a smaller company that the cable operator had previously agreed to buy.

“It will be a big bite to take for high-yield buyers,” Spencer Godfrey, an analyst at high-yield research firm KDP Investment Advisors Inc. in Montpelier, Vermont, said in a telephone interview. “Charter will be one of the largest, if not the largest, issuer in the high-yield market.”

Investment Grade

Time Warner’s bonds, which will be backed by additional security in the deal are “expected” to retain their investment-grade rating, Winfrey said in the call.

Moody’s Investors Service placed its Baa2 ratings on Time Warner debt on review for downgrade saying “its intention to merge with a lower-rated and more leveraged entity” would “lead to deterioration in the newly combined” company to a level “not consistent with a family investment grade rating.”

Standard & Poor’s placed Time Warner’s senior unsecured debt on CreditWatch with negative implications, saying their worst case scenario would see the existing bonds no lower than ‘BBB-’.

Time Warner’s bonds jumped by the most in more than a year after Charter announced its plan to purchase the company. Time Warner’s $1.25 billion of 4.5 percent notes coming due in September 2042 gained 9.5 cents to 88.3 cents on the dollar to yield 5.5 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Its $1.5 billion of 7.3 percent bonds maturing in July 2038 posted the biggest gain, with a 11.7 cent increase to 114.3 cents, Trace data show.

‘More Firepower’

Moody’s also put Charter’s Ba3 rating, which is three-levels below investment-grade, on review for an upgrade, saying the high proportion of equity in the deal may result in ratings being increased by one level.

Financing for the deal is being provided by Bank of America Corp. and Credit Suisse Group AG, Goldman Sachs Group Inc. and UBS AG, Charter said in a statement.

“They shouldn’t have a problem getting this done,” Erich Marriott, a Bloomberg Intelligence analyst said by telephone. “Charter’s got a little bit more financial flexibility. They’ve got more firepower with the Bright House deal, they’ve got more capacity to be more amenable to shareholders.”

Charter’s offer for $195 a share in cash and stock is higher than their original offer back in January 2014 for $132.50 a share. The purchase will help Charter almost quadruple its number of cable subscribers.

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