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CHARTER COMMUNICATIONS, INC. /MO/ filed this Form 425 on 05/26/2015
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MAY 26, 2015 / 12:00PM GMT, CHTR - Charter Announces Transactions with Time Warner Cable and Bright House Networks M&A Call


That’s a good segue to financing, where our goal has been to secure long dated, low cost financing without having separate financing silos. Part of that with ensure flexibility and access now and the future, really to all pockets in the debt capital markets, bank investment grade, second lien and high yield, and we thought it would be in the long-term interest for all stakeholders to be treated well here.

Slide 18 shows the sources and uses for both transactions and slide 19 gives a simple breakdown of our anticipated debt structure resulting from the Time Warner Cable and Bright House transactions. In addition to the $5 billion from Liberty and expected cash balances at both Charter and TWC, we’ve signed commitment papers for over $31 billion, which includes the following: $23 billion relating to the $100 per share, a $4 billion bridge to fund the extra $15 if elected, $2 billion for the cash portion of the Bright House transaction which we now have committed and an increase of our available revolver by $1.7 billion to a total of $3 billion in revolver at closing. We expect that revolver to be undrawn at closing.

Our commitment papers allow us significant flexibility to finance into various types of debt securities at various levels. We’ll be opportunistic with respect to the tranching and timing in placing that debt in advance of close, depending on what the market gives us. At close, our pro-forma debt will be nearly $62 billion with a leverage ratio of 4.5 times, based on 2015 estimated EBITDA, that would grow to $66 billion and 4.8 times leverage if TWC shareholders opt for $115 of cash.

Our goal will be to bring that ratio to the lower end of a 4 to 4.5 times target leverage range. We will continue to evaluate our target leverage based on a number of factors: including our expected growth rates in the subscription business that provides good cash flow visibility, timing on when we actually expect to become a tax cash payer, a maturity profile in the overall size of our debt complex, and the interest rate outlooks as it relates to refinancing the towers.

Moving onto tax on slide 20, these transactions create significant tax benefits for New Charter. Both transactions will enhance the value of our existing tax assets and the Bright House transaction will create new tax assets through a partnership structure that drives value for both New Charter shareholders and Advance/Newhouse. Both transactions create a larger base of operating income, accelerating the utilization of our NOLs.

And while we do anticipate our third ownership shift under section 382 in the tax code, we don’t anticipate that shift to negatively impact the net present value of our tax assets. In fact, we estimate the greater operating income and faster utilization of our NOLs is worth over $400 million on net present value basis to New Charter. That’s over and above the $3 billion in net present value that we estimate for our excess tax basis and loss carry forwards today.

Our NOL sits above the partnership with Advance/Newhouse, will benefit New Charter shareholders only. Until Advance/Newhouse exchanges their partnership units for common stock. When Advance/Newhouse does exchange, there will be a substantial step up in the basis of the assets in the partnership, pro-rata as units are exchanged.

That basis step up will be market value of the exchange Charter stock at the time, minus Advance/Newhouse’s share of tax basis in the new partnership assets. We have a tax receivables agreement with Advance/Newhouse in that regard, whereby New Charter will retain 50% of the step up benefits we realized, and Advance/Newhouse will receive the remaining of 50% of the step up benefits. Only when cash realized on a with and without, and first in, first out basis.

We summarize the governance for New Charter on slide 21. Charter, Liberty and Advance/Newhouse have agreed to a stockholders agreement that will be effective upon closing of the Bright House transaction. The agreement provides for 13 directors, with 2 designated by Advance/Newhouse, 3 designated by Liberty, and 8 additional directors with one of those being Tom Rutledge. Tom will also be offered the chairmanship in New Charter in addition to a CEO role.

The governance framework is substantially the same as what we previously announced, although we do provide for two directors for Advance/Newhouse, at ownership above 11% in recognition of the value the transaction provides, and the expertise Advance/Newhouse brings to Charter. From a closing perspective, the Charter, Time Warner Cable transaction is subject to approval by both Charter and Time Warner Cable shareholders and regulatory approval.

In closing with the Charter, Advance/Newhouse transaction for Bright House is conditioned on the sale of Time Warner Cable and is subject to regulatory approval as well. We would expect to close the transactions concurrently at the end of 2015. Now back to Tom before we take some Q&A.



Tom Rutledge - Charter Communications, Inc. - President, CEO

Thank you, Chris, I’d like to make a few closing comments regarding the regulatory review of our transactions before turning the call over to Q&A. From a regulatory perspective I’m confident that our proposed transactions will obtain approval from regulators. Through Charter we’ll offer consumers a broadband product that makes watching on-line video, gaming and engaging in other data hungry applications a great experience, including at peak times.

Charter’s slowest speed tier is 60 megabits downstream and considerably faster and less expensive than Time Warner Cable’s comparable tiers, with no data caps or usage base pricing. Charter will bring these products, pricing and practices to Time Warner Cable and Bright House customers, while embracing Time Warner Cable’s roll out of its 300 megabit tier.






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