Charter Changes Direction

The sinking cable franchise finds new life in a big refinancing.
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Investors are taking notice as Charter Communications (CHTR) - Get Report takes a step back from the brink.

The St. Louis cable operator shored up some of its leaky finances Wednesday with an

$8.4 billion debt swap that pushes payback dates out three or more years and removes an estimated $140 million in annual interest expenses.

Wall Street greeted the move with a 40% stock surge. Meanwhile, UBS analyst Aryeh Bourkoff slapped an immediate buy rating on the stock, citing the structural improvements to the company's balance sheet.

Analysts and investors say the refinancing went a long way toward relieving some of the biggest worries, namely that the laggard cable shop was headed for another painful capital restructuring or, worse, Chapter 11.

But while gaining some breathing room from creditors is surely a step in the right direction, Charter is far from healthy.

The company is in the midst of a management shake-up, with Neal Smit taking the CEO spot earlier this month and a permanent CFO appointment yet to be made. As a business, Charter operates deep in the red, with a latest-year loss of $3.58 billion on $5.12 billion in sales.

Charter also manages to set itself apart from the cable pack by burning more cash, losing more customers and carrying a whopping $19 billion debt load. The interim management team has had its hands full just trying to keep the company afloat and trying to line up asset sales and swaps to consolidate cable systems in a more easy-to-operate regional footprint.

But after the company burned through a surprising $219 million in cash last quarter, analysts' concerns about liquidity began to intensify. At the end of June, Charter had $40 million in cash and $870 million in credit available, enough, the company said, to get through 2005.

Liquidity concerns are less pressing now that the company stands to eliminate about $1.6 billion in total debt through the refinancing plan, and subsequently trim its interest payments.

On the subscriber front, cable watchers say the company is seeing a lot of competition from satellite broadcasters like

EchoStar

(DISH) - Get Report

and

DirecTV

(DTV)

. But on a conference call with analysts earlier this month, executives blamed a drop in subscribers -- particularly hard-earned digital subscribers -- on the expiration of promotional pricing plans.

The executives added that the worst of those losses are behind them now.

One investor, who is long the stock and was buying more Wednesday, says the refinancing and the implied elimination of $1.6 billion in debt could make "this a $4 stock."

Charter shares rose 46 cents, or 40%, to $1.61 in afternoon trading Wednesday.