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Let the number crunching begin.

Ever since

Charter Communications

(CHTR) - Get Charter Communications, Inc. Class A Report

announced a $765 million asset sale last week, onlookers have been trying to sort out the implications for Charter and other cable TV system operators.

While the price tag suggests a strengthening hand for the big players in the industry, the numbers aren't as remarkable as they might appear, given the terms of another major sale earlier this year.

And, as one analyst points out, the most immediate effect of the sale will be to boost the confidence of Charter's bondholders. Ironically, though, that could actually turn out to be a bearish development for holders of Charter's stock, as they jockey with bondholders over their respective portions of the debt-heavy St. Louis company. Obtaining a good price for last Wednesday's asset sale makes it less likely that Charter can retire its debt cheaply.

Shares in Charter, which rebounded from the brink of bankruptcy earlier this year, rose 13 cents Friday to close at $4.63. The stock hit a 52-week low of 76 cents in March.

Dig It

At issue is Charter's definitive agreement to sell cable systems boasting 235,000 subscribers to the ABRY Partners private equity firm.

The transaction represents a step in Charter's ongoing effort to dig its way out from under a mess of debt, but the size of this particular step isn't exactly clear.

Upward Course
Charter's comeback

On the bright side, the transaction -- the proceeds from which Charter says it will use to reduce bank debt and fund future capital expenditures -- improves Charter's liquidity position, says one analyst. Though the company abandoned plans last month to buy back convertible debt, the cash from last week's deal will likely fund Charter through 2005, past the maturity of part of that debt, says Aryeh Bourkoff, cable analyst at UBS. The rest of the convertibles come due in 2006.

But with Charter generating smaller earnings before interest, taxes, depreciation and amortization after the transaction's closing, the company's overall leverage is unlikely to improve, say Bourkoff and Credit Suisse First Boston analyst Lara Warner. (Bourkoff has a buy rating on Charter's bonds and convertibles, and a neutral rating on its equity; he or an analyst on his team is an owner of Charter stock, as is UBS itself. Warner has an underperform rating on the stock; her firm has received recent investment banking compensation from Charter.)

Go Figure

Beyond the proceeds, though, what analysts are picking apart is the $3,255 per-subscriber valuation of the properties, derived from dividing the $765 million cash purchase price of the sale by the 235,000 subscribers.

Per-sub pricing is a common yardstick for valuing cable transactions and cable systems, though it's less accurate than measures based on the cash flow generated by a cable system, or the cash flow a buyer believes it will be able to generate under new management.

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At first glance, the $3,255 figure is great news for the cable business. Earlier this year, after all,


(CMCSA) - Get Comcast Corporation Class A Report

sold systems representing 317,000 subscribers to privately held

Bresnan Broadband Holdings

for $525 million in cash plus an undisclosed equity stake in Bresnan. Press reports at the time indicated that the total value of the deal was $675 million, or a little more than $2,100 a sub.

That $1,000-plus jump since February looks good, except for the fact that the Comcast properties in Montana, Wyoming, Colorado and Utah aren't exactly the equivalent of the ones that Charter is unloading in Miami Beach, Fla., and in five other Eastern states.

In part, that's because the Comcast properties, inherited from AT&T Broadband, apparently required major upgrades to bring them on par with the systems that the nation's largest cable operators want to have for their customers: systems with high channel capacity, digital video tiers and high-speed Internet access.

Contrast that with some stats from the systems that Charter is spending: digital video penetration at 33.6% of basic subscribers, and 14% high-speed Internet penetration. That's pretty much upgraded; Comcast, for purposes of comparison, has 27.1% digital penetration and 20% high-speed data penetration in the systems it owned and operated prior to taking on AT&T Broadband as a fixer-upper.

Including a $935-per-subscriber upgrade cost, the Comcast systems were valued at $3,100 per subscriber, Merrill Lynch analyst Jessica Reif Cohen wrote in a note last week -- a number right in line with the $3,255-per-sub Charter transaction.

There Goes the Neighborhood

Other recent transactions also are well above the $3,000 mark. In February, for example,



sold New Jersey systems serving 80,000 subscribers for $245 million in cash to private equity firm Spectrum Equity Investors, which promised to spend an additional $40 million by the end of 2004 to upgrade the properties. That $285 million total translates into a valuation of more than $3,500 per sub.

The $3,255 per-sub number of Charter's latest transaction "lends support," says Warner, to Charter's current enterprise value, which she calculates at $3,320 per sub. But it could still be a negative for equity holders, she says. The new transaction, she writes, "makes bondholders more confident that the underlying asset value of Charter approaches the $2,900 per-subscriber book value of debt."

"Bondholder confidence," continues Warner, "makes it very difficult for Charter to effect a restructuring in which it could purchase outstanding debt at below par, which we believe is the only way Charter will avoid significant dilution to existing equity holders over the long term."