HomeMy WebLinkAbout6.h. Charter Communications, Inc. RestructuringAGENDA ITEM: Charter Communications, Inc.
Restructuring
AGENDA SECTION:
Consent
PREPARED BY: Emmy Foster, Assistant City
Administrator
AGENDA NO.
ATTACHMENTS: Consent to Charter Restructuring
Resolution; Report Concerning Charter
Reorganization; and Comments of the
MN Dept. of Commerce
APPROVED BY
oAJ
RECOMMENDED ACTION: Motion to approve the Consent to Charter Restructuring
Resolution
4 ROSEMOUNT
City Council Meeting: July 7, 2009
CITY COUNCIL
EXECUTIVE SUMMARY
ISSUE
The issue before the City Council is the approval of the proposed Consent to Charter Restructuring
Resolution.
BACKGROUND
On March 27, 2009, Charter and its subsidiaries filed for Chapter 11 bankruptcy in federal court in
New York. In Rosemount, Charter Cable Partners, LLC (formerly Marcus Cable Partners) holds the
franchise. Charter filed for bankruptcy because the company is insolvent its liabilities exceed its
assets. The purpose for a Ch. 11 bankruptcy is to improve a company's financial position by facilitating
the elimination, reduction or restructuring of a company's liabilities and debt.
Under both the Franchise and Minnesota Statutes, Section 238.083, the Franchising Authority's written
approval of the Reorganization is necessary. In April, 2009, Charter requested that the City's (the
Franchising Authority) written approval of the Reorganization by filing Federal Communications
Commission "FCC Form 394.
Mr. Vose has reviewed the FCC Form 394, the comments of the Minnesota Department of Commerce,
and other related materials. He recommends that the City approve the resolution to consent to the
reorganization.
The detailed "Report Concerning Charter Reorganization" by Bob Vose and the Comments of the
Minnesota Department of Commerce are attached and provide more information on this issue.
SUMMARY
Staff recommends the approval of the Consent to Charter Restructuring Resolution.
RESOLUTION NO.
CONSENT TO CHARTER RESTRUCTURING
WHEREAS, Charter Cable Partners, LLC (formerly Marcus Cable Partners)
"Franchisee an indirect, wholly -owned subsidiary of Charter Communications, Inc.
"Charter owns a cable television system (the "System in the City of Rosemount, Minnesota
(the "Franchise Authority and
WHEREAS, Franchisee operates pursuant to a cable franchise ordinance "Franchise
issued by the Franchising Authority; and
WHEREAS, on March 27, 2009, Charter and certain of its subsidiaries filed voluntary
petitions in the United States Bankruptcy Court for the Southern District of New York
"Bankruptcy Court seeking relief under the provisions of Chapter 11 of Title 11 of the United
States Code in order to effectuate a financial restructuring (Case No. 09- 11435); and
WHEREAS, pursuant to the terms of agreements entered into between Charter and its
key bondholders, Charter's current Class A Common Stock and Class B Common Stock will be
cancelled and replaced with new voting stock owned by Paul G. Allen and such bondholders, as
described in filings with the Bankruptcy Court (the "Reorganization copies of which have
been provided to the Franchise Authority; and
WHEREAS, pursuant to the Reorganization, the voting interest of Charter's current
principle shareholder, Paul G. Allen and his affiliated entities, will be reduced from
approximately 91% to 35 and new stockholders (principally certain bondholders) will acquire
the remaining 65% of the voting shares; and
WHEREAS, under both the Franchise and Minnesota Statutes, Section 238.083, the
Franchising Authority's written approval of the Reorganization is necessary; and
WHEREAS, in April, 2009, Charter requested the Franchising Authority's written
approval of the Reorganization by filing Federal Communications Commission "FCC Form
394; and
WHEREAS, the City has reviewed the FCC Form 394 and finds that the Reorganization,
as described therein, will not materially impair the legal, technical or financial ability of Charter
or Franchisee to perform under the terms of the Franchise.
WHEREAS, the Franchise Authority has considered and approves of the Reorganization
described above.
NOW, THEREFORE, IT IS RESOLVED AS FOLLOWS:
1. The foregoing recitals are approved and incorporated herein by reference.
2. The Franchise Authority consents to the Reorganization described in the FCC Form 394.
3. This Resolution shall be deemed effective upon adoption.
4. This Resolution shall have the force of a continuing agreement and the Franchise
Authority shall not amend or otherwise alter this Resolution without the consent of the
Franchisee.
5. The Franchisee remains fully subject to any liabilities or obligations under the Franchise
and state and federal law regardless of when such liabilities or obligations arose.
6. The Franchising Authority expressly reserves and does not waive and its rights regarding
Franchise compliance regardless of when the acts, failures to act, or other events giving
rise to and such compliance matters occurred.
PASSED, ADOPTED AND APPROVED this day of July, 2009.
ATTEST:
City Administrator
By:
Mayor
CHARTERED
470 US Bank Plaza
200 South Sixth Street
Minneapolis MN 55402
Robert J.V. Vose
(612) 337 -9275 telephone
(612) 337 -9310 fax
rvose@kennedy- graven.com
REPORT CONCERNING CHARTER REORGANIZATION
JUNE 18, 2009
This Report is prepared for the cities of Aitkin, Faribault, Little Falls, Rosemount and the
Sherburne /Wright Counties Cable Commission, a 10 -city consortium. The Report addresses
Charter's request to reorganize. Charter's proposed reorganization requires local franchising
authority (i.e. city) approval.
CC VIII Operating, LLC holds the franchise in Aitkin, Faribault, Little Falls and the
Sherburne /Wright cities. In Rosemount, Charter Cable Partners, LLC (formerly Marcus Cable
Partners) holds the franchise. These entities are indirect, wholly -owned subsidiaries of Charter
Communications, Inc. "Charter
On March 27, 2009, Charter and its subsidiaries filed for Chapter 11 bankruptcy in
federal court in New York. Charter filed for bankruptcy because the company is insolvent its
liabilities exceed its assets. The purpose for a Ch. 11 bankruptcy is to improve a company's
financial position by facilitating the elimination, reduction or restructuring of a company's
liabilities and debt.
In this case, Charter will reduce certain bonded indebtedness in exchange for giving those
bondholders a stake in the company. Charter's current common stock will be cancelled and
replaced with new voting stock Currently, Charter's founder, Paul G. Allen, and his affiliated
entities hold approximately 91% of Charter's voting stock. Mr. Allen's ownership will be
reduced to 35% while new stockholders (principally 5 bondholders) will acquire 65% of the
1
voting shares. Additional details of the reorganization are set forth in the FCC Form 394, and
are more fully described in the proposed consent resolution.
INFORMATION REVIEWED
The following were relied upon for this Report:
1. FCC Form 394 (transfer application) executed and delivered April, 2009, along with various
documents included on CD with the application.
2. Comments of the Minnesota Department of Commerce (MDOC) in Docket No. P5535,
56156; PA -09 -560.
3. Various correspondence, e-mails and discussions with Charter officials concerning the
request.
STANDARD FOR REVIEW
The local franchise, state law, and federal laws and regulations all apply to review of
Charter's FCC Form 394 request. The Cable Communication Policy Act of 1984, as amended
by the 1992 Cable Act and Telecommunications Act of 1996 (collectively the "Cable Act
establishes a national policy concerning the regulation of cable television systems. The Cable
Act establishes a 120 day period for review of FCC Form 394 and such other information
required by local law and the franchise. A requesting party must furnish such information as
may be reasonably requested relative to a franchise transfer. 47 C.F.R. 76.502. The Cable Act
preempts inconsistent state or local requirements. Accordingly, the cities have until August,
2009 to act on the request.
Under Minnesota Statutes, Section 238.083, the local franchising authority must give
prior consent to any "transfer of stock in a corporation so as to create a new controlling interest
in a cable communication system." The term "controlling interest" includes both a change in
majority stock ownership and a change in actual working control, however exercised. The
approval must be in writing and cannot be unreasonably withheld. Minn. Stat. 238.083, Subds.
2 and 4.
2
In this case, Mr. Allen will remain Charter's largest single shareholder but will no longer
own a majority of Charter's stock. A majority of Charter's stock will be held by certain
bondholders. Moreover, while no stock voting agreements exist, the bondholders will be in a
position to exercise actual control over Charter and its subsidiaries. Thus, the reorganization
requires franchising authority consent under Minnesota law. Charter apparently does not dispute
this since, after all, Charter filed FCC Form 394s seeking local approvals.
When reviewing a requested franchise transfer or change in stock ownership in a
franchise holder, municipalities normally review legal, technical, and financial qualifications of
the resulting company. Local determinations are entitled to significant deference and will be
sustained if they are fairly debatable. See, Charter Communications v. County of Santa Cruz,
304 F.3d 927 (9 Cir. 2002).
CHARTER REORGANIZATION
Charter represents that the reorganization will not result any operational changes, nor any
perceptible change or adverse impact on local cable service or operations. Charter will remain
bound by all obligations and liabilities under the franchises including liabilities arising prior to
reorganization. Accordingly, there are no significant legal or technical qualification issues to
review.
Charter's financial qualifications are obviously an issue. Charter maintains that the
reorganization will improve its financial position. The question, however, is not whether Charter
will be better off. Rather, the issue for review is whether Charter will emerge from bankruptcy
with capacity to perform all franchise obligations for the term of the franchises.
We have not retained a financial advisor to perform an in -depth analysis of this question.
We have instead relied upon a financial review performed by the Minnesota Department of
Commerce (DOC). The DOC reviewed the reorganization and provided its report to the
3
Minnesota Public Utilities Commission (PUC) because Charter Fiberlink, LLC and Charter
Telephone of Minnesota, LLC n/k/a Charter Fiberlink CC VIII, LLC are Charter subsidiaries
with certificates of authority to provide local telecommunications services in Minnesota. These
companies are subject to PUC regulation and the proposed reorganization requires PUC approval
under Minn Stat. 237.16, subd. 1(b). The DOC reviewed whether Charter has the financial
capacity to continue to operate a telephone network and provide telephone service.
The DOC found that Charter does have adequate financial capacity and recommended
approval. The DOC's report is being provided with this Report. Among other things, the DOC
notes that the reorganization will reduce Charter's debt by $8 billion and result in $3 billion in
new investment in the company. The DOC concludes that "[a] reorganized Charter is in the
public interest because it is expected to have a reduced debt to- equity or leverage ratio, reduced
debt interest payments, and positive free cash flow." Based on these are positive steps for
Charter's financial future, the DOC recommends that the PUC approve the reorganization in
relation to oversight of telephone services provided by Charter subsidiaries.
Based on the DOC recommendation and expected PUC approval (which is consistent
with approvals granted by other state utility regulatory commissions), it is my opinion that
Charter likely could and would seek to "overturn" any local government denial of the FCC Form
394 in bankruptcy court. Further, Charter's proposed reorganization does not sufficiently impact
the public interest to justify participating in a bankruptcy court proceeding in New York to
defend a denial. If anything, the evidence is that reorganization may positively impact Charter's
financial future. Because there is no basis to conclude that the reorganization will negatively
impact Charter's financial ability to provide cable service and comply with the local franchise, I
recommend that the reorganization be approved
4
CONCLUSION
I recommend adoption of the attached resolution conditionally approving the reorganization.
The conditions imposed confirm: the City's right /obligation to consent to any future significant
changes in control over the local cable franchise; that the franchisee remains fully subject to the
franchise and applicable laws, and; that Charter remains subject to all liabilities or obligations
regardless of when such liabilities or obligations arose. The City expressly reserves all its rights
in that regard.
After a fair amount of discussion and negotiation, Charter has agreed to reimburse the parties
legal fees and expenses associated with this review, up to a capped amount. I do not believe that
my fees will exceed this cap and Charter should fully reimburse all fees.
5
M INNESOTA
DEPARTMENT OF
C OMMERCE
L
June 8, 2009
Burl W. Haar
Executive Secretary
Minnesota Public Utilities Commission
121 7th Place East, Suite 350
St. Paul, Minnesota 55101 -2147
RE: Comments of the Minnesota Department of Commerce
Docket No. P5535,5615/PA -09 -560
Dear Dr. Haar:
Attached are the comments of the Minnesota Department of Commerce in the following matter:
In the Matter of the Application for Authority for Charter Communications, Inc. to Engage
in a Reorganization Transaction Under Chapter 11 of the United States Bankruptcy Code
and to Emerge from Bankruptcy
The petition was filed on May 15, 2009:
The Department recommends approval and is available to answer any questions the Commission
may have.
Sincerely,
Charles A. Hudak, Esq.
Kennard B. Woods, Esq.
Jon C. Martin, Esq.
Friend, Hudak Harris, LLP
Three Ravinia Drive, Suite 1450
Atlanta, Georgia 30346
/s/ BRUCE L. LINSCHEID
Financial Analyst
BLUja
Attachment
85 7th Place East, Suite 500
St. Paul, Minnesota 55101 -2198
www.commerce.state.mn.us
651.296.4026 FAX 651.296.1959
An equal opportunity employer
BEFORE THE MINNESOTA PUBLIC UTILITIES COMMISSION
COMMENTS OF THE
MINNESOTA DEPARTMENT OF COMMERCE
DOCKET No. P5535,5615/PA -09 -560
I. BACKGROUND
On May 15, 2009, the Minnesota Department of Commerce (the Department) received a copy of
an application (Application) for Minnesota Public Utilities Commission (Commission) approval
for Charter Communications, Inc., Debtor —in Possession's (Charter DTP's) plan of
reorganization under Chapter 11 of the United States Bankruptcy Code (the Reorganization).
Charter Fiberlink, LLC. (Charter Fiberlink) and Charter Telephone of Minnesota, LLC n/k/a
Charter Fiberlink CC VIII, LLC (Charter CC VIII) (the Applicants) are subsidiaries of Charter
DIP with certificates of authority to provide local and interexchange telecommunications services
in Minnesota.
The Applicants assert the following statement and make the following requests regarding the
Reorganization. Charter -DIP's bankruptcy reorganization is expected to result in a change in the
ownership of the Applicants' ultimate corporate parent, but it is expected to be transparent to
Minnesota customers. Applicants also request a waiver of any hearing requirement) If Charter
Fiberlink CCO, LLC's (Charter CCO's) application for authority is approved before the
completion of the reorganization, Charter CCO requests that the Commission's approval to
engage in the reorganization transaction be granted to Charter CCO.
1 Based upon a June 2, 2009 conversation between Friend, Hudak Harris, LLP, Counsel for the Applicants, and
the Department, Applicants understand that an evidentiary hearing is not ordinarily required unless a matter becomes
contested, and no action on the question of a hearing need take place.
2 Application, pp. 1 -3, and Footnote 2, p. 2; Charter CCO requested facilities -based local telecommunications
authority in Docket No. P6716/NA -09 -240 on March 11, 2009.
Docket No. P5535,5615/PA -09 -560
Analyst assigned: Bruce L. Linscheid
Page 2
A. CHARTER DIP AND APPLICANTS
Charter -DIP is the ultimate holding company of the Applicants (see Exhibit A). Charter -DIP is a
broadband communications company offering residential and commercial customers traditional
cable video programming, high -speed Internet services, and telephone services, as well as
advanced broadband services such as high definition television. Charter DIP provides telephone
services to residential and small business customers through its operating subsidiaries.
The Applicants are indirect, wholly -owned subsidiaries of Charter -DIP. They are authorized to
provide facilities -based local exchange and interexchange services in Minnesota, and together
they provide telephone services to approximately 73,000 Minnesota customers.
B. THE REORGANIZATION
On March 27, 2009, Charter -DIP began a Chapter 11 reorganization process through filings with
the United States Bankruptcy Court for the Southern District of New York, Case No. 09- 11435.
Charter -DIP entered into separate agreements with holders of certain of its subsidiaries' senior
notes that provide for its reorganization and recapitalization in a pre- arranged plan of
reorganization (the Reorganization). Charter -DIP expects that approximately $8 billion of debt
will be exchanged for common stock and $3 billion of new capital will be invested by current
debt holders. In addition, the voting interest of Charter -DIP's principal stockholder will be
reduced from approximately 91 percent to 35 percent and new stockholders will acquire the
balance of the voting interests in Charter -DIP, although only four (4) of the new stockholders are
expected to hold a 10 percent or greater voting or equity interest, none of the new stockholders
will hold a greater voting interest than the 35 percent to be held by Charter -DTP's existing
principal stockholder, and there are no agreements among the new shareholders with respect to
voting their respective stock interests.
C. PUBLIC INTEREST
The Applicants assert that the Reorganization will serve the public interest by enhancing
competition, assuring no disruption of service, causing no adverse effect to the Applicants'
managerial or technical qualifications, and enhancing their financial qualifications. The
Reorganization primarily relates to the capital structure and ownership of Charter -DIP and is not
expected to affect the operations of the Applicants. As a result, the Reorganization is expected to
be transparent to both the customers and the operations of the Applicants. The Reorganization is
3 2 Id. p. 3.
4 3 Id. p. 4.
5 4 Id. pp. 5 7.
Docket No. P5535,5615/PA -09 -560
Analyst assigned: Bruce L. Linscheid
Page 3
expected to improve Charter -DTP's capital structure by substantially reducing its long -term debt
and debt servicing requirements. The improved financial position is expected to allow Charter
DIP to expand services to its operating subsidiaries, including the Applicants.
The Applicants have also made the following disclosures:
a) The Reorganization will not be completed prior to the Commission's approval unless
the bankruptcy court orders otherwise.
b) Charter DTP's financial statements for the year ending December 31, 2008 were
attached to the Application.
c) No new 911 Plans or approvals are needed as a result of the Reorganization.
d) The Applicants intend to operate with their existing interconnection agreements, and
will assume, as necessary, such agreements upon emergence from bankruptcy.
e) The Applicants will continue operating and do not intend to release or return NXX
codes to the North American Numbering Plan Administration (NANPA) as a result of
the Reorganization.
f) The Applicants will continue to offer service with no change in the rates, terms or
conditions of service.
g) The Applicants will continue to be responsible for filing annual reports and making
other regulatory filings following the completion of the Reorganization. Contact
information does not change.
h) No customer notice is required because the Reorganization is expected to be
transparent to customers.
i) No tariff changes will be made as a result of the Reorganization.
j) A notice of closing will be filed within 20 days of completion of the Reorganization.
k) The Applicants agree to pay any regulatory fees they may have outstanding with the
Commission.
1) A website for the bankruptcy filings was identified.?
II. STATEMENT OF ISSUES
A. Does the Reorganization require Commission approval?
B. Is the Reorganization in the public interest?
C. Have the Applicants complied with Minnesota law requiring prior Commission approval
of the Reorganization?
6 5 Id. pp. 9 -10.
7 6 Id. pp. 8 -9.
Docket No. P5535,5615/PA -09 -560
Analyst assigned: Bruce L. Linscheid
Page 4
D. Is there a requirement to provide Commission notice for the assignment of
interconnection agreements?
E. Does the Reorganization have any impact on 911 Plans that require regulatory approvals?
F. Does the Reorganization require other regulatory approvals?
G. Should approval to engage in the Reorganization be granted to Charter CCO?
III. LEGAL REFERENCES
Minn. Stat. §237.035(a) provides that telecommunications carriers are subject to regulation under
this chapter only to the extent required under paragraphs (b) to (e). Minn. Stat. §237.035(b)
provides that telecommunications carriers shall comply with sections 237.121 (prohibited
practices) and 237.74 (regulation of telecommunication carriers). Minn. Stat. §237.035(c) states
that telecommunications carriers shall comply with section 237.16, subd. 8 (local competition
rules) and 9 (universal service fund requirements). Minn. Stat. §237.035(d) states that to the
extent a telecommunications carrier offers local service, it shall obtain a certificate under section
237.16 for that local service. Minn. Stat. §237.035(e) provides that a telecommunications
carrier's local service is subject to this chapter except that: (1) a telecommunications carrier is not
subject to rate -of- return or earnings investigations under section 237.075 (rate change) and
237.081 (investigation), and (2) a telecommunications carrier is not subject to section 237.22
(depreciation, amortization).
Minn. Stat. §237.23 states that it shall be unlawful for any telephone company, corporation,
person, partnership, or association subject to the provisions of this chapter to purchase or acquire
the property, capital stock, bonds, securities, or other obligations, or the franchises, rights,
privileges, and immunities of any telephone company doing business within the state without
first obtaining the consent of the commission thereto.
Minn. Stat. §237.74, subd. 12 provides that no telecommunications carrier shall construct
or operate any line, plant, or system, or any extension of it, or acquire ownership or
control of it, either directly or indirectly, without first obtaining from the commission a
determination that the present or future public convenience and necessity require or will
require the construction, operation, or acquisition, and a new certificate of territorial
authority.
Minn. Stat. §237.16, subd. 4 states that no person shall acquire ownership or control of
another telephone company either directly or indirectly, without first obtaining from the
Commission an amended certificate of authority.
Docket No. P5535,5615/PA -09 -560
Analyst assigned: Bruce L. Linscheid
Page 5
Minn. Stat. §237.16, subd. 1(b) states that no person shall provide telephone service in
Minnesota without first obtaining a determination that the person possesses the technical,
managerial, and financial resources to provide the proposed telephone services and a
certificate of authority from the commission under terms and conditions the commission
finds to be consistent with fair and reasonable competition, universal service, the
provision of affordable telephone service at a quality consistent with commission rules,
and the commission's rules.
Minnesota Rule 7812.2210, subp. 3B states that a substantial change in a term or
condition of a service, or a discontinuation of a service may take effect 20 days after
filing and providing written notice to affected customers.
Minnesota Rule 7812.2210, subp. 16 addresses mergers and acquisitions and states: "In
accordance with Minnesota Statutes, section 237.74, subdivision 12, before acquiring ownership
or control of any provider of local service in Minnesota, either directly or indirectly, a CLEC
must demonstrate to the commission that the present or future public convenience and necessity
require or will require the acquisition. To make this determination, a CLEC must show that the
merger is consistent with the public interest, based on such factors as the potential impact of the
merger on consumers, competition, rates, and service quality."
The Commission's requirement that it receive notice regarding the assignment of interconnection
agreements is documented in the docket, In the Matter of ASC, L.P. and U S WEST
Communications, Inc. Under the Federal Telecommunications Act of 1996, Docket No.
P421/EM -98 -554, Order Rejecting Agreement And Directing Further Filing, June 22, 1998 at
page 3.
Minn. Rule Part 7812.0550 contains the requirements for Commission approval of 911 Plans.
IV. ANALYSIS
A. COMMISSION ACTION IS NEEDED FOR THE REORGANIZATION
The Commission has established a consistent precedent for requiring approval for any change of
ownership affecting Minnesota telephone companies and telecommunications carriers.
Commission approval is not required for corporate reorganizations in which ultimate ownership
and control do not change and the operating company is not impacted by the reorganization.
Although a change of control does not occur since the current majority stockholder continues to
hold a 35 percent voting interest that is more than any other stockholder and no voting
8 In the Matter of an Application for Approval of a Corporate Reorganization by Winstar Wireless, Inc.,
Docket No P5246/PA -00 -925, August 25, 2000.
Docket No. P5535,5615/PA -09 -560
Analyst assigned: Bruce L. Linscheid
Page 6
agreements exist, the Reorganization will result in a change in the ownership of the Applicants'
ultimate corporate parent, and the Commission should review the change in ownership to
determine if the transaction is in the public interest.
B. THE PROPOSED REORGANIZATION IS IN THE PUBLIC INTEREST
Charter -DIP is a broadband communications company offering residential and commercial
customers traditional cable video programming, high -speed Internet services, and telephone
services, as well as advanced broadband services such as high definition television, and the
Applicants are indirect wholly -owned subsidiaries of Charter -DIP (see Exhibit A).
The Department previously provided the following analysis in its May 15, 2009 Comments
regarding Charter Communications, Inc.'s (Charter's or the Company's) internal reorganization
or transfer of assets in Docket No. P6716,5535,5615IPA -09 -241 (09 -241), which occurred prior
to its bankruptcy or Reorganization. Charter's December 31, 2008 financial statements
contained the following disclosure in the independent auditor's report dated March 16, 2009:
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. [T]he Company has announced that it expects to file
voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code, primarily as a result of the following matters: (i)
the Company's significant indebtedness; (ii) the Company's ability
to raise additional capital given its current leverage; and (iii) the
potential inability of the Company's subsidiaries to make
distribution for payments of interest and principal of the debts of
the parents of such subsidiaries due in 2009
Charter's financial statements revealed net losses, positive operating cash flows and a highly
leveraged capital structure. Charter incurred net losses of $2.5 billion, $1.6 billion and $1.4
billion, and its net cash flows from operating activities were $399 million $327 million, and
$323 million for the years ending December 31, 2008, 2007, and 2006 respectively. Charter's
debt totaled $21.7 billion, and its stockholders' deficit was $10.5 billion as of December 31,
2008."
9 US SEC FORM 10 -K, Charter Communications, Inc., for the fiscal year ended December 31, 2008, filed
March 16, 2009, p. F -8.
10 2 /bid. pp. F -2 and 3.
11 3 Ibid. pp. F -4 through F -7 and F -9.
Docket No. P5535,5615/PA -09 -560
Analyst assigned: Bruce L. Linscheid
Page 7
Charter seeks to restructure its capital through a Chapter 11 reorganization. On February 12,
2009, Charter announced that it had reached an agreement in principle with holders of certain of
its subsidiaries' senior notes to exchange their notes for new stock of approximately $4.1 billion.
On February 11, 2009, Charter entered into separate restructuring agreements with each note
holder pursuant to which Charter would file voluntary petitions for relief on or prior to April 1,
2009 under Chapter 11 of the United States Bankruptcy Code to implement a restructuring
pursuant to a joint plan of reorganization aimed at improving its capital structure.'
Charter submitted a plan of reorganization with the bankruptcy court on March 27, 2009, which
would result in the reduction in debt by approximately $8.2 billion. Charter's disclosure
statement with respect to the plan of reorganization projects the December 31, 2008 financial
statements to show the following pro forma financial results for the year ending on December 31,
2009 if the bankruptcy court approves the plan of reorganization:
Long -term debt declines from $21.7 billion to $13.5 billion,
Shareholders' deficit of $10.5 billion increases to positive equity of $2.2 billion,
Net loss of $2.5 billion improves to a net loss of $175 million,
Net operating cash flows of $399 million increase to $1.1 billion, and
Free cash flow or operating cash flow minus capital expenditures becomes positive.
Net operating cash flows are projected to increase from $1.1 billion in 2009 to $1.7
billion in 2010, $1.9 billion in 2011, $2.2 billion in 2012, and $2.4 billion in 2013;
and capital expenditures are projected to decline slightly from $1.2 billion to $1.1
billion from 2009 to 2013)
Charter stated that it comes before the bankruptcy court at a time when its business is continuing
to grow and is operationally sound. It generates positive cash flow before debt service, revenues
have grown from approximately $5.5 billion to $6.5 billion from 2006 to 2008, and adjusted
EBITDA or income from operations before depreciation and amortization, impairment charges,
stock compensation expense, and other operating expenses, such as special charges and gain/loss
on sale or retirement of assets increases from $1.9 billion to $2.3 billion.
12 4 /bid. p. F -8.
13 US Bankruptcy Court Southern District of New York, In re Charter Communications, Inc., et al. Chapter 11 Case
No. 09- 11435, Debtors' Disclosure Statement Pursuant to Chapter 11 of the Bankruptcy Code with Respect to the
Debtors' Joint Plan of Reorganization, March 27, 2009, p. 56.
14 2 /bid. Exhibit C- Reorganized Debtors' Projections.
15 US Bankruptcy Court Southern District of New York, In re Charter Communications, Inc., et al. Chapter 11 Case
No. 09- 11435, Declaration of Gregory L. Doody, Chief Restructuring Officer and Senior Counsel of Charter
Communications, Inc., In Support of First Day Pleadings, March 27, 2009, Para. 6, pp. 3 -4.
Docket No. P5535,5615/PA-09--560
Analyst assigned: Bruce L. Linscheid
Page 8
Charter also stated that it is before the bankruptcy court primarily because of recent deteriorating
capital market conditions and its significant debt load of approximately $21.7 billion. Charter
recognizes the need to de- leverage its balance sheet, and the plan of reorganization improves
Charter's existing capital structure by:
Canceling approximately $8 billion of debt at various holding companies;
Reducing Charter's annual interest expense by more than $830 million;
Raising up to $2 billion in additional equity through a rights offering; and
Refinancing approximately $1.2 billion in senior holding company debt instruments
and raising $267 million in new notes.
Under Chapter 11, Charter is operating as a debtor -in- possession (Charter -DIP) under bankruptcy
court protection from creditors and claimants since it obtained "first day" orders, which provided
flexibility in cash management, the ability to use cash collateral, and the ability to pay certain
pre petition claims.l" The bankruptcy court approved Charter's disclosure statement regarding
its plan of reorganization on May 5, 2008 and authorized Charter to begin soliciting votes on the
plan of reorganization that is scheduled for a confirmation hearing on July 20, 2009.
A reorganized Charter -DIP is in the public interest because it is expected to have a reduced debt
to- equity or leverage ratio, reduced debt interest payments, and positive free cash flow.
C. THE APPLICANTS HAVE REQUESTED PRIOR COMMISSION APPROVAL FOR THE
PROPOSED REORGANIZATION
The Application was filed on May 15, 2009, and the bankruptcy confirmation hearing for the
Reorganization is scheduled to begin on July 20, 2009. The Commission should have adequate
time to consider this matter before the bankruptcy court acts. In the unlikely event that the
requirement for prior Commission approval for Reorganization is preempted, the Commission
has not previously sought to contest the jurisdiction of the bankruptcy court. No violation of
Minn. Stat. §237.23 and 237.74, subd. 12 is expected to occur.
16 2 Ibid. Para. 7 and 8, p. 4.
17 US SEC FORM 10 -Q, Charter Communications, Inc., for the quarterly period ended March 31, 2009, filed May
8, 2009, p. 28.
18 2 Ibid. pp. 8 and 28.
19 United States Bankruptcy Court Southern District of New York, In re Charter Communications, Inc. et al.,
Debtors, chapter 11 Case No. 09 -11435 (JMP) Jointly Administered, Notice of Order (1) Approving the
Disclosure Statement, (II) Establishing a Record Date of Voting on the Plan or Reorganization and the Rights
Offering, (III) Approving Solicitation Packages and Procedures for the Distribution Thereof, (IV) Approving
the Rights Offering, Procedure and Rights Exercise Form, (V) Approving the Forms of Ballots and Manner
of Notice, (VI) Approving the Commitment Agreement, (VII) Approving the Commitment Fees, (VIII)
Establishing Procedures for Voting on the Plan and (IX) Establishing Notice and Objection Procedures for
Confirmation of the Plan, May 11, 2009, Para. 5, p. 3.
Docket No. P5535,5615/PA -09 -560
Analyst assigned: Bruce L. Linscheid
Page 9
D. NO ASSIGNMENTS OF INTERCONNECTION AGREEMENTS APPEAR TO BE
REQUIRED DUE TO THE REORGANIZATION
The Commission's 60 -day notice requirement for the assignment of interconnection agreements
does not apply to the Reorganization largely because the Applicants intend to operate pursuant to
their existing interconnection agreements. The requirement to provide notice for the
assignment of interconnection agreements was addressed in the Department's May 15, 2009
comments in the application to transfer assets in Docket No. P6716,5535,5615/PA -09 -241 (09-
241).
Service to customers under interconnection agreements is not expected to be interrupted because
of the timing of bankruptcy court action. The Applicants have made the necessary filings in a
timely manner to provide the Commission notice prior to action by the bankruptcy court. The
Applicants will assume existing interconnection agreements upon emergence from bankruptcy,"
and continuous service will be provided under the affected interconnection agreements.
E. THE REORGANIZATION IS NOT EXPECTED TO REQUIRE CHANGES TO 911
PLANS
As with interconnection agreements, no new 911 Plans or approvals are needed as a result of the
Reorganization. The requirements for the assignment of 911 Plans were addressed in the
Department's comments in Docket No. 09 -241. Following the completion of the Reorganization,
the Applicants will continue to provide 911 services consistent with their existing 911 Service
Plans and service arrangements.
F. WITH THE EXCEPTION OF THE REQUIREMENT TO FILE A CLOSING
STATEMENT, NO ADDITIONAL REGULATORY APPROVALS ARE REQUIRED
The Reorganization is expected to be transparent to the Applicants' customers, and no
requirement for customer notice is anticipated. No tariff changes as an immediate result of the
Reorganization are expected. The Applicants do not intend to release or return NXX codes to
NANPA as a result of the Reorganization. The Applicants agree to pay regulatory fees and file
20 ha the Matter of ASC, L.P. and US WEST Communications, Inc. Under the Federal Telecommunications Act of
1996, Docket No. P421/EM-98-554, ORDER REJECTING AGREEMENT AND DIRECTING FURTHER
FILING, June 22, 1998, page 3.
21 Application, p. 8.
22 Application, p. 8.
23 May 29, 2009 electronic and telephone reply by Friend, Hudak Harris, LLP, Counsel for the Applicants, in
response to the Department's May 26, 2009 electronic information request asking the significance of the Applicants
assuming interconnection agreements if necessary.
Docket No. P5535,5615/PA -09 -560
Analyst assigned: Bruce L. Linscheid
Page 10
annual reports and other required regulatory filings, and their contact information does not
change. The Applicants agree to file a notice of closing within 20 days of completion of the
Reorganization.
G. APPROVAL TO ENGAGE IN THE REORGANIZATION SHOULD BE EXTENDED TO
CHARTER CCO IF THE COMMISSION APPROVES ITS REQUEST FOR NEW
AUTHORITY IN DOCKET 09 -240
Charter Fiberlink and Charter Telephone of Minnesota, LLC (Charter Telephone of Minnesota)
currently hold Certificates of Authority in Minnesota. Charter Fiberlink's and Charter Telephone
of Minnesota's authorities were described in the Department's March 16, 2009 comments in
Docket No. 09 -241:
Charter Fiberlink is an indirect, wholly -owned subsidiary of
Charter Communications, Inc. Marcus Fiberlink, LLC obtained
local niche authority in Minnesota, and the Commission
approved Charter Communications Holding Company, LLC
acquisition of Marcus Fiberlink, LLC and the name change of
Marcus Fiberlink, LLC to Charter Fiberlink, LLC. Charter
Fiberlink acquired the Minnesota assets of Seren Innovations, Inc.
d/b /a Astound Broadband, including its facilities -based local
authority, tariff, 911 Service Plan and interconnection agreement to
serve the St. Cloud and St Joseph exchanges of Qwest. The
Commission subsequently approved eight amendments of Charter
Fiberlink's Certificate of Authority resulting in authority to provide
facilities -based local exchange services, which includes authority
to provide resold local exchange services, interexchange services
and local niche services (facilities -based local exchange authority),
in the exchanges and rate centers previously described.
[Charter Telephone of Minnesota] is an indirect, wholly -owned
subsidiary of Charter Communications, Inca Bresnan Telephone of
Minnesota, LLC (Bresnan Telephone) obtained a Certificate of
24 Application, pp. 8 -9.
25 In the Matter of the Application for the Transfer of Assets of Charter Fiberlink, LLC, Docket No.
P6716,5535,5615/PA -09 -241, Joint Application, pp. 9 -10, P5535/NA -97 -993 (12- 31 -97).
26 2 Id. p. 9, P5535/PA -99 -1679 (2- 8 -00).
27 3 Id. p. 9, P5535/M -00 -450 (5- 31 -00).
28 4 Id. p. 10, P5535,5704/PA -05 -1484 (12- 14 -05).
29 5 Id. pp. 11 -13; and Application, Footnote 1, p. 2.
Docket No. P5535,5615/PA -09 -560
Analyst assigned: Bruce L. Linscheid
Page 11
Authority to provide local niche services. Bresnan Telephone
subsequently obtained facilities -based local exchange authority.
Charter Communications Holding Company, LLC subsequently
obtained Commission approval to acquire Bresnan Telephone.
The Commission approved Bresnan's name change request to
Charter Telephone of Minnesota, LLC, and the Applicants have
requested an amendment to Charter Telephone of Minnesota,
LLC's Certificate of Authority for a name change to Charter CC
VIII as well as an expansion of exchanges.
The Applicants requested that approval for the Reorganization be extended to Charter CCO if the
Commission approves Charter CCO's request for facilities -based local telecommunications
authority in Docket No. 09 -240. The Reorganization need not be extended to Charter CC VIII if
the name change from Charter Telephone of Minnesota, LLC to Charter CC VIII is approved in
Docket No. P5615/M -09 -239 because Charter CC VIII represents a name change for the same
legal entity already a party to the Application. Approval to engage in the Reorganization should
be extended to Charter CCO if the Commission approves Charter CCO's request for new
authority prior to the Commission considering the Reorganization.
V. COMMISSION ALTERNATIVES
1. Approve the reorganization of Charter Communications, Inc., Debtor -in- Possession.
Extend Charter Communications, Inc., Debtor -in- Possession's reorganization to
Charter Fiberlink CCO, LLC if the Commission has previously approved a Certificate
of Authority for Charter Fiberlink CCO, LLC in Docket No. P6716/NA -09 -240.
The Applicants must file a notice of consummation within 20 days of the closing of
the reorganization transaction.
2. Approve the Application with Modifications.
3. Reject the Application.
30 6 Id p.14, Docket No. P5615/NA -98 -1512 (1- 12 -99).
31 7 Id. Docket No. P5615/NA -99 -834 (9- 2 -99).
32 8 Id. p.15, Docket No. P5535/PA -99 -1679 (2- 8 -00).
33 9 Id. Docket No. P5615/00 -449 (5- 31 -00).
34 10 Id. and Docket No. P5615/M -09 -239 (filed 3-11-09); and Application, Footnote 1, p.2.
Docket No. P5535,5615/PA -09 -560
Analyst assigned: Bruce L. Linscheid
Page 12
VI. RECOMMENDATION
Based on its review to date, the Department recommends that the Commission adopt Alternative
l:
/ja
Approve the reorganization of Charter Communications, Inc., Debtor -in- Possession.
Extend Charter Communications, Inc., Debtor -in- Possession's reorganization to
Charter Fiberlink CCO, LLC if the Commission has previously approved a Certificate
of Authority for Charter Fiberlink CCO, LLC in Docket No. P6716/NA -09 -240.
The Applicants must file a notice of consummation within 20 days of the closing of
the reorganization transaction.
EXHIBIT A
OWNERSHIP DIAGRAMS OF CHARTER BEFORE AND AFTER
REORGANIZATION
BEFORE
9% voting interest
Charter Communications, Inc. "Charter")
Charter Communications Holding Company, LLC
"Charter Holdco
CCHC, LLC
"CCHC)
Charter Communications Holdings, LLC
"Charter Holdings
CCH 1 Holdings, LLC
"CIH")
CCH I, LLC
"CCH 1
CCH 11, LLC
"CCH II
CCO Holdings, LLC
"CCO Holdings
Charter Communications Operating, LLC
"Charter Operating
Various Intermediate Subsidiaries Majority Owned or
Controlled by Charter Communications, Inc.
J
Certificated Charter Fiberlink State Telephone
Companies
91% voting Interest
Paul G Allen and
his controlled entities
1
AFTER
Various equity holders, none of
which individually holds
35% voting interest
65% voting Interest
Charter Communications, Inc. ("Charter')
Charter Communications
Holding Company, LLC
("Charter HoIdco
CCHC, LLC
("CCHC")
Charter Communications Holdings, LLC
("Charter Holdings
CCH 1 Holdings, LLC
"C1H")
CCH I, LLC
"CCH I")
1
CCH II, LLC
("CCH II
CCO Holdings, LLC
("CCO Holdings")
Charter Communications Operating, LLC
("Charter Operating")
Various Intennedlale Subsidiaries Majority Owned or
Controlled by Charter Communications, Inc.
Certificated Charter Flbedink Stale Telephone
Companies
35% voting interest
Paul G Allen and
his controlled entities
2
CERTIFICATE OF SERVICE
I, Sharon Ferguson, hereby certify that I have this day, served copies of the
following document on the attached list of persons by electronic filing, e -mail, or
by depositing a true and correct copy thereof properly enveloped with postage paid
in the United States Mail at St. Paul, Minnesota.
Minnesota Department of Commerce
Comments
Docket No. P5535,5615/PA -09 -560
Dated this 8 day of June, 2009
/s /Sharon Ferguson
P5535,5615/PA -09 -560
Burl W Haar Exec Sec
MN Public Utilities Commission
350 Metro Square Bldg
121 7th Place E
St Paul MN 55101
Docketing
MN Dept of Commerce
85 7 Place E Ste 500
St Paul MN 55101 -2198
Julia Anderson
Attorney General's Office
1400 Bremer Tower
445 Minnesota St
St Paul MN 55101 -2131
John Lindell
Attorney General's Office -RUD
900 Bremer Tower
445 Minnesota St
St Paul MN 55101
Charles A Hudak Esq
Kennard B Woods Esq /Jon C Martin Esq
Friend Hudak Harris LLP
Three Ravinia Dr Ste 1450
Atlanta GA 30346
Carrie L Cox Esq
Associate General Counsel Reg
Charter Communications Inc
12405 Powerscourt Dr
St Louis MO 63131
Paul Mraz
Independent Emergency Svcs LLC
235 Franklin St SW
Hutchinson MN 55350
Cathy E Clucas
Director Governmental Affairs
Embarq MN Inc
30 E 7 St Ste 1630
St Paul MN 55101 -4901
Carrie Rice
Regulatory Affairs Administrator
H ickoryTech
221 E Hickory St PO Box 3248
Mankato MN 56002 -3248
Ms Rita Bouie
c/o Frontier Corporation
Attn: Carrier Services 5 Fl
180 S Clinton Ave
Rochester NY 14646
Mankato Citizen's Telephone Company
221 E Hickory St
PO Box 3248
Mankato MN 56002 -3248
Joann Hanson
Director Regulatory
Qwest
200 S 5` St Ste 2200
Minneapolis MN 55402
Citizens Telecommunications Company of
Minnesota LLC
c/o Scott Bohler
2378 Wilshire Blvd
Mound MN 55363 -1652
Jack D Phillips
Regulatory Staff Manager
Frontier Communications of MN Inc
14450 Burnhaven Dr
Burnsville MN 55306
George Sleight
Qwest 911
200 S 5 St Ste 890
Minneapolis MN 55402
Martin Moody
Metropolitan Emergency Svcs Board
2099 University Ave W Ste 201
St Paul MN 55104 -3431
Kathy Krushe
Statewide 911 Plan /DPSafety
444 Cedar St Town Sq Ste 137
INTER- OFFICE
AGENDA ITEM: Professional Services Agreement
Charlie's Park Tennis Courts
AGENDA SECTION:
Consent
PREPARED BY: Dan Schultz, Director of Parks and
Recreation
AGENDA NO.
ATTACHMENTS: Professional Services Agreement
APPROVED BY:
DA1
RECOMMENDED ACTION: Motion to approve the professional services agreement with
Brauer and Associates to design and provide other technical assistance relating to the
construction of the new tennis courts at Charlie's Park.
I ROSEMOUNT
CITY COUNCIL
City Council Regular Meeting: July 7, 2009
EXECUTIVE SUMMARY
ISSUE
Staff from School District #196 and the City are finalizing the three documents that will allow for the City
to construct two new tennis courts next to the existing two courts at Charlie's Park located just south
Rosemount Elementary School. The first document is an easement that would allow for the City to access
the school district property and build two new tennis courts, the second is a use and operations agreement
and the third document is a land swap agreement that will ultimately provide the City ownership of the
Charlie's Park property south of 144 Street.
Staff has received a professional services proposal from Brauer and Associates to design the new tennis
courts and provide other technical assistance relating to the construction of the courts. The proposal is
attached to the executive summary and details the work that they would be doing. The proposal indicates
that the City would be billed on an hourly rate based on the work that is done. The three areas that have
been identified for services include:
Design Development and Construction Document Preparation estimated cost $10,400
Bidding Procedures /Site Observation /Contract Administration estimated cost 4,550
Pre Design Geotechnical Evaluation /Engineering Recommendations estimated cost 2,500
Staff has shared with the Parks and Recreation Commission the intent to work with Brauer and Associates
on this project and has their support to keep this project moving forward.
Staff is recommending the City Council approve the professional services agreement with Brauer and
Associates to design the new tennis courts and provide other technical assistance relating to the
construction of the new tennis courts at Charlie's Park