Charter investors react to CEO’s plans to keep buying equity, no M&A

By Devika Patel

Knoxville, Tenn., Dec. 9 – Charter Communications, Inc. saw its capital structure tumble 2 to 3 points on Wednesday after chairman and chief executive officer Tom Rutledge said that the company planned to use excess capital (the company issued $4 billion of debt in September) to buy back common shares and common units, rather than pursue mergers and acquisitions.

Charter’s 3.9% senior notes due 2052 were the most active in the capital structure.

The notes fell 2¼ points to par ½, a source said. There was more than $18 million reported volume.

While volume in the company’s other issues was light, the notes were also down 2 to 3 points.

Charter’s 3.85% notes due 2061 fell 3 points to close the day at 95¼.

The 3.95% senior notes due 2062 fell 2¾ points to 97½.

The 4.8% senior notes due 2050 fell 2 5/8 points to close the day at 113.

The 3.7% senior notes due 2051 were down 1¾ points to 97¼.

The telecommunications sector, in general, has been under pressure over the past few sessions.

Federal Communications Commission acting chair Jessica Rosenworcel is poised for an official appointment to the position by the end of the week.

Rosenworcel has made reclassifying broadband a Title II service priority, which would give the FCC greater regulatory authority of broadband service providers such as Charter.

“Obviously, there’s a new DOJ and a new FCC,” Rutledge said at the UBS Global TMT Virtual Conference on Tuesday.

“The FCC, we’ve seen Jessica [Rosenworcel] was there when we did the Time Warner deal.

“That deal was done under a Democratic administration,” he said.

On May 26, 2015, the company announced a merger with Time Warner Cable Inc., which valued Time Warner at $78.7 billion. The companies completed the combination on May 18, 2016.

Rutledge noted that he was hesitant to take on a new acquisition or merger without knowing how the new administration will tweak regulations, but he also said the company is doing just fine without taking on M&A.

“That said, I haven’t seen anyone go through the deal process, and I don’t know what it will be like,” he said.

“I think there are good arguments of why we can continue to do M&A.

“On the other hand, we don’t need it today.

“We have our own stock that we’ve been buying back in significant amounts.

“We still think the business is fundamentally a great business,” he said.

The company still intends to buy back stock with its capital.

“We’ve said that if we could do the right M&A, we would do it,” Rutledge said.

“We think that this business is attractive.

“Obviously, there’d be synergies and opportunity and scale advantages to having that M&A but fundamentally, we also think that we’re in a great business and that buying our own company [stock] when other opportunities weren’t available and that’s still our view,” Rutledge said.

On Sept. 27, Charter, issuing as Charter Communications Operating, LLC and Charter Communications Operating Capital Corp., sold a $4 billion three-part offering of senior secured notes.

The company sold $1.25 billion of 2.25% notes due Jan. 15, 2029 at a spread of Treasuries plus 98 basis points. The notes had been marketed in the Treasuries plus 120 bps to 125 bps area.

Also sold were $1.35 billion 3.5% notes due March 1, 2042, pricing with a spread of 160 bps over Treasuries. The notes came 20 bps lower than talk for a spread in the Treasuries plus 180 bps area.

The longest-dated tranche consists of $1.4 billion of 3.95% notes due June 30, 2062. The series was sold with a spread of Treasuries plus 200 bps, lower than talk in the 220 bps to 225 bps spread area.

All three notes have optional make-whole calls and then par calls after certain dates.

Proceeds were earmarked for general corporate purposes, including potential buybacks of class A common stock of Charter and common units of Charter Holdings.

Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co. LLC are joint bookrunners of the offering.

Charter is a Stamford, Conn.-based telecom.

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