It only took a year and a half for Jerry Kent to find his way back into cable, but he's doing it in the toughest part of the business: rural cable.
The former Charter Communications CEO has taken on the assignment of managing Classic Communications, an MSO that has just emerged from Chapter 11 bankruptcy protection and owns systems serving small towns and truly rural areas.
Through a series of acquisitions, Classic stitched together systems serving about 400,000 basic subscribers in 10 states, with the biggest concentration in Texas. But the low channel capacity and the slow pace of system upgrades sent customers fleeing to DBS services, shrinking the subscriber base to 325,000.
Classic filed under Chapter 11 in November 2001 with $641.8 million in debt. It shed about two-thirds of that in bankruptcy court, and its leverage stands around four times annual cash flow.
Kent's investment firm Cequel III was brought in by Oaktree Capital Management, which bought Classic junk bonds with a face value of $170 million at an estimated 10-20 cents on the dollar and converted it into 52% of the company's equity. It has also injected $45 million in new cash. Investment banker Daniels & Associates advised Oaktree on the restructuring and on bringing in Cequel.
Classic is a difficult MSO to run. The systems are widely spread out, so there's few efficiencies from the geographical clustering that suburban operators get. And with few customers per cable headend and per mile of plant, it's hard to get a return on system upgrades.
"It's a tough management challenge, I acknowledge it," Kent said. "We like to place our bets where management makes a difference." He wouldn't provide any financial details, but another industry executive said Cequel is putting in very little cash and was tapped primarily for its management expertise.
Oaktree picked Kent even though his previous company, Charter, is being investigated by a federal grand jury for accounting and management practices that may have overstated the company's operating results.
Kent said his only involvement with that investigation so far was receiving a subpoena for documents he had. "I haven't heard anything in a long time."