Capital Markets

Default Watch: Three’s Not a Charm

Charter Communications nears default by missing $73.7 million in payments on senior debt. In the same boat are Simmons Bedding and Spansion.
Stephen TaubJanuary 16, 2009

Troubled Charter Communications said two of its subsidiaries missed scheduled interest payments totaling $73.7 million on senior notes.

CEO Neil Smit said the troubled cable company is in discussions with its bondholders about improving its capital structure. “We’ve made significant progress over the last several years with regard to operational improvements and we hope to make similar progress with regard to our capital structure,” he said.

Charter’s and its subsidiaries’ cash on hand and cash equivalents as of January 13, 2009, was more than $900 million, which is available to pay operating costs and expenses, the company said in a press release.

Charter, a big seller of high-risk, high-yield bonds, was just one of three companies that missed scheduled interest payments on their debt on Thursday. The others were Simmons Bedding Co. and memory-chip maker Spansion Inc.

Each of the companies has a 30-day grace period to make the payments to avoid default.

These developments are not too surprising, given the credit crunch and imploding economy. Earlier this week, Moody’s predicted about 300 corporate junk-bond issuers will default over the next 12 months. As a result, the global speculative-grade default rate is projected to hit 15.1 percent by the end of 2009.

In the United States, the junk default rate will top 15.3 percent by year-end, according to the credit-rating agency.

Spansion announced it was delaying the payment of interest on its senior notes due in 2016. The company said it is exploring strategic alternatives, including a possible merger or sale of the company.

Simmons Bedding, a subsidiary of Simmons Co., revealed that it did not make a scheduled interest payment of $7.9 million on its $200 million senior subordinated notes.

On November 12, Simmons Bedding entered into a forbearance agreement with its senior bank lenders and then, on December 9, announced it had reached an agreement to extend its forbearance period to March 31, 2009.

“The forbearance period extension which we entered into in early December is designed to provide us with sufficient time to reduce the leverage on our balance sheet by pursuing an organized financial restructuring,” said Stephen Fendrich, Simmons Bedding’s president and COO.

Simmons Co.’s cash on hand as of January 14 was about $49.7 million, the company said.

Simmons Co. was acquired by buyout firm Thomas H. Lee Partners LP in 2003 for about $1.1 billion in cash and debt.

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