Charter Bonds Rise as Bright House Deal to Lower Debt Burden

Charter Communications Inc. bonds rallied by the most in three months after the cable company said its $10.4 billion purchase of a majority stake in billionaire Si Newhouse Jr.’s Bright House Networks will lower its debt load.

Charter’s $2 billion of 5.75 percent notes due in December 2024 rose 1.25 cents to 103.375 cents on the dollar to yield 5.3 percent at 3:27 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the biggest increase since Dec. 17. The debt was sold in October at par.

More than 80 percent of the purchase price for Bright House will consist of Charter stock, with the $2 billion balance in cash. That will help reduce Charter’s debt load to 3.9 times a measure of earnings from 4.4 at the end of 2014, including an estimated $2.1 billion in new debt to help finance the transaction, the Stamford, Connecticut-based company said Tuesday in an investor presentation.

The deal “is a de-leveraging event,” Spencer Godfrey, an analyst at high-yield research firm KDP Investment Advisors Inc. in Montpelier, Vermont, said in a telephone interview. “Bonds would probably have rallied even more if there weren’t so many moving parts to all these deals.”

Approval Needed

Bright House, the sixth-largest U.S. cable company with about 2.5 million cable subscribers, is a consolation prize for Charter after it lost out to Comcast Corp. last year in an effort to buy Time Warner Cable Inc. Comcast’s $45.2 billion purchase is pending regulatory approval.

In the wake of that transaction, Charter agreed last April to take control of 3.9 million Comcast cable-TV customers.

Charter’s purchase of Bright House depends upon conditions, including shareholder and regulatory approval, Time Warner Cable’s right of first offer for Bright House and the close of Charter’s transactions with Comcast.

The closing of such a deal would contribute to Charter having “materially increased scale and improved leverage metrics,” according to analysts at Standard & Poor’s, which put the company on CreditWatch with positive implications.

The listing indicates the potential for at least a one-step upgrade to Charter’s BB- rated debt if the Comcast and Bright House deals go through. S&P will also take into account the company’s longer-term financial policy and leverage target, the analysts wrote in a report Tuesday.

Shares of Charter rose 5.3 percent to $193.11 in New York trading.

Bright House is owned by Newhouse’s Advance Publications Inc., which also controls Conde Nast Publications and the Golf Digest.

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