Investors Look to Charter Junk Bond Sale

Investors in the long-suffering junk bond sector have their fingers crossed this week, hoping an $850-million bond sale by No. 4 U.S. cable television company Charter Communications Inc. could give their market a helpful jolt.

But even a successful sale by Charter, controlled by Microsoft Corp. co-founder Paul Allen, won’t turn the junk market completely around after a disastrous year in 2000, investors said.

The sale by two units of St. Louis-based Charter, expected by Friday, would be the largest junk bond sale in nearly four months.

The market has largely been shut down as investors have shied away from below-investment-grade bonds amid surging default rates for junk issues sold in the 1990s.

The average junk bond mutual fund had a negative total return of about 10% last year, as falling bond values more than wiped out interest earned.

Investors said Charter is one of the few companies that can now sell junk bonds. The firm is expected to issue its bonds as soon as Friday afternoon, after wrapping up its marketing that day in New York.

The company “has a good credit profile, a good business, good management and has executed well,” said Richard Cryan, who helps invest $1 billion of junk bonds for Evergreen Funds in Boston. “You would be hard pressed to look at its business and come up with substantive criticisms.”

Even so, “The main concern is that Charter has a very large financing requirement, of which the $850 million is only a piece,” said Cryan. “If it attempts to sell in a market that is not receptive, it may do so at ever-increasing interest rates, which could hurt the value of its existing bonds.”

Charter sold $1.3 billion of junk bonds last Jan. 6 and $3 billion in March 1999. It also sold $750 million of convertible bonds last year.

In November, Charter already had $14.5 billion of outstanding debt, according to credit rating agency Moody’s Investors Service.

But large debt loads are typical for cable companies. Charter “has a history of growing its cash flow and meeting its expectations, so it should be a well-received transaction, especially if it’s priced attractively,” said Brian Hessel, who helps manage $3.5 billion of junk bonds for J&W; Seligman & Co. in New York.

Charter said the sale by Charter Communications Holdings and Charter Communications Holdings Capital will likely include seven- and 10-year senior notes and 10-year senior discount notes.

Charter’s 8.25% notes maturing in April 2007 were recently offered at 92.5 cents on the dollar, with a yield to maturity of 9.88%, while its 10% notes maturing in April 2000 were offered at 98.25 cents on the dollar, with a yield to maturity of 10.3%.

Goldman Sachs & Co. and Morgan Stanley Dean Witter & Co. are arranging this week’s private sale, sources said.

Moody’s rates Charter’s existing senior unsecured debt “B2,” its fifth-highest junk grade, with a positive outlook.