Charter Investors Not Seeking Control, Apollo Says

NEW YORK, July 28 (Reuters) – Private equity firm Apollo Management LP and the other firms planning to invest $1.6 billion in bankrupt Charter Communications Inc., are not trying to take control of the company, a senior partner at Apollo testified on Tuesday.

Charter was in U.S. bankruptcy court in Manhattan on Tuesday beginning the second week of a hearing to try to gain court approval for a “prepackaged” bankruptcy reorganization plan.

Eric Zinterhofer, who has led Apollo’s investment in Charter, told the court that his firm and several other large investors in Charter’s debt are not acting together in a secretive club deal. Lawyers for Charter’s senior bank lenders charged that the bankruptcy plan would improperly change who controls the company.

“If we did do anything like this it would have been in writing, it would have been clear, and everyone would know about it,” Zinterhofer said.

He said that his firm and the other firms, Oaktree Capital, Crestview Partners and Franklin Templeton, had all bought the company’s debt at different prices, and would likely have different views about when their investments would be profitable.

Charter filed for bankruptcy protection in March, buckling under $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 be able shed more than $8 billion of 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 opposed Charter’s bankruptcy plan, arguing Charter violated its loan agreements as the bankruptcy reorganization plan would change control of the company from Microsoft (MSFT.O) co-founder Paul Allen, constituting a default that would make debt reinstatement impossible.

Under the proposed bankruptcy plan, investors Apollo, Crestview, Franklin Templeton and Oaktree would hold most of the company’s shares, and Paul Allen would have a small economic shareholding, but a 35 percent voting stake in the company.

Zinterhofer told the court on Tuesday that Apollo had thought Charter may have to restructure its debt at some point, but had not expected a bankruptcy filing before 2010.

He described “frantic negotiations” the company’s bondholders held prior to the bankruptcy filing, and how the different investment firms worked together to complete a deal for the company.

Apollo had been buying up Charter’s debt through December 2008 and invested almost half a billion dollars in the company prior to its bankruptcy and the bankruptcy filing had a “negative material effect” on the company’s investment thesis for Charter, Zinterhofer told the court.

He said the debtholders were brought together by the company for the purpose of restructuring, and that “there is no common goal to somehow control the company among these parties.”

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. law 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 in re: Charter Communications Inc., U.S. Bankruptcy Court, Southern District of New York, No. 09-11435.

By Emily Chasan
(Editing by Steve Orlofsky)