Efforts by Paul Allen’s cable company Charter Communications to restructure its nearly $22 billion debt load have reached an impasse — and Allen, as a result, may pay more than an extra $1 billion in taxes.
The Microsoft co-founder and the controlling shareholder of Charter is at the center of a fight between a group of bondholders and a bank group led by JPMorgan Chase over what form Charter’s debt restructuring should take.
Sources said that after spending the summer in a legal back-and-forth, the banks and bondholders are not talking, setting the stage for the tussle to be decided in a courtroom sometime in the next month.
Charter has teamed with owners of about half of Charter’s bonds to propose a reorganization of the country’s fourth-largest cable company. The plan would leave Allen with the biggest voting stake and keep the company’s tax structure intact.
However, JPMorgan and other senior Charter lenders object to the restructuring, saying it amounts to a change of control since the bondholders would wind up owning the business in exchange for forgiving about half their loans.
The banks have asked for one or two percentage points more in interest on their roughly $8 billion in debt, several sources said. That would amount to between $80 million and $160 million a year extra for Charter, which after the reorganization expects to generate $300 million annually in free cash flow.
However, several sources said Charter has not been willing to agree to such a concession since the equity and debt markets have rallied, and appears to have stopped negotiating altogether with Charter’s senior lenders.
For Allen, the goal is to see a bankruptcy court judge approve Charter’s deal with its bondholders, otherwise the banks may repossess Charter and change its ownership structure.
That would leave Allen, who is said to be worth $16 billion, unable to take advantage of Charter’s net operating losses, making him personally liable for more than $1 billion in taxes, a source said.
“It is extraordinary that Allen is forcing the court to go through with this,” the source said.
A group of creditors opposing Charter’s restructuring plan in a filing said the reorganization allows Allen “to receive in excess of $2 billion in benefits and full releases in exchange for mostly out-of-the-money claims and interest.”
That includes, they said, $175 million in cash, $85 million in notes, $25 million in restructuring fees and expenses, warrants to buy stock in a new company and the benefits of keeping billions of dollars of net operating losses.
Charter and Allen spokespeople declined comment.