Allen has a Charter plan

Chairman tells SEC he may buy company's bonds, or the company itself, on the cheap

With investors treating Charter Communications as if it's on the verge of Chapter 11, multibillionaire Chairman Paul Allen is starting to craft a rescue plan, by either taking Charter private or helping the MSO pare its debt.

Allen said last week in an SEC filing that he is considering buying some of Charter's public bonds or the 46% of the company he doesn't already own. The company's huge leverage and the fallout from the financial scandal at fellow cable operator Adelphia Communications have sliced 90% out of Charter's stock price in the past year. Worse is the plunge in the price of Charter's bonds, trading at just 40-60 cents on the dollar.

The stock drop means that the $7.8 billion in cash Allen has sunk into Charter is worth just $880 million today. But it also means that he could buy the rest of the company for a mere $750 million at today's prices.

The news came as Charter joined three other MSOs in posting strong growth for the second quarter, up 14% in both revenues and cash flow. The company has $2.3 billion in existing credit lines and no significant repayment or other funding issues until 2004. "Trading at a near-bankrupt level, that I don't understand," complained CEO Carl Vogel.

A more complicated option for Allen would be to buy several classes of Charter's $9.3 billion in outstanding bonds, some trading at 50 cents on the dollar. If he bought up bonds at a discount in the open market and offered to convert them into equity, the immediate public value of Charter would likely shoot up, and Charter's balance sheet could be far healthier.

In Allen's SEC filing, he says flat out that his first target will be Charter's $1.8 billion in convertible bonds, now trading around 40 cents on the dollar. Those are designed to be readily converted into stock. The process of an insider's buying other types of bonds and converting them into stock would be more difficult.