Time Warner Cable bonds' lack of change-of-control covenant worrying

By Cristal Cody

Tupelo, Miss., July 3 - The lack of change-of-control protection on Time Warner Cable, Inc. and Time Warner Cable Enterprises LLC bonds is worrying the market on growing speculation the company will be acquired by Charter Communications, Inc., according to informed sources.

Other than a liens covenant that generally limits the company and its material subsidiaries from pledging any of their assets to secure debt unless the bonds are also equally and ratably secured, Time Warner Cable's bonds "have no other meaningful covenant restrictions, which facilitates asset stripping," Covenant Review, LLC, an independent credit research firm, said in a report on Wednesday.

Time Warner Cable's bonds "can get annihilated with some clever engineering in a Charter transaction," the firm said.

The take-over speculation for the New York-based cable company began after Liberty Media Corp. bought a 27.3% stake in Charter.

Moody's Investors Service, Inc. said in a Tuesday release that holders of Time Warner Cable's bonds "should be wary."

The company likely will lose its investment-grade rating in a Charter takeover, the agency said.

Time Warner Cable has $24.5 billion in 18 bonds outstanding.

"TWC's non-guarantor subsidiaries hold substantially all of the PP&E and other income generating assets, and non-guarantors represented 100% of revenues in Q1 2013," Covenant Review said.

Subsidiary Time Warner Cable Enterprises has $2 billion of debt outstanding under its 8.375% debentures due 2023 and 8.375% debentures due 2033.

The covenants on Time Warner Cable Enterprises' bonds are better and include a liens covenant, subsidiary debt covenant, restricted payments covenant and future guarantors covenant, Covenant Review said.

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