Human Capital & Careers

Charter Ties Incentives to Debt Restructuring

The big cable company hopes management will be encouraged to build enterprise value for its talks with bondholders.
Stephen TaubJanuary 14, 2009

In an unusual twist on incentive pay, Charter Communications Inc. is offering incentives to executives tied to the restructuring of its debt.

In a regulatory filing covering what it calls a restructuring value bonus plan (RVP), the nation’s fourth-largest cable company said that the plan is intended to provide incentive to management to maximize enterprise value as the company attempts to make balance-sheet improvement efforts with the bondholders. The company and its subsidiaries previously had announced that discussions had been initiated with bondholders about financial alternatives to improve the company’s balance sheet.

In connection with the initiation of the discussions, and to provide incentives to management to maximize enterprise value during the process, the company also changed the compensation packages of certain named executives.

Amounts of RVP bonus awards for certain executives will be three to four times base salary plus target bonus, subject to the discretion of president and CEO Neil Smit as to individual awards. The incentive money will be paid one-third when the company’s restructuring is completed, with one-third after six months, and the final one-third after 12 months. The company stipulated that no RVP payments will be made if a participate leaves the company voluntarily, or is terminated for cause prior to the due date for payment.

Last month, Charter said in a regulatory filing it had asked financial advisor Lazard LLC to initiate discussions with the company’s bondholders about financial alternatives to improve its balance sheet. “We believe engaging in discussions with our bondholders, aimed at improving our capital structure and enhancing our financial flexibility, is in the company’s and our customers’ best interests,” CEO Smit said at the time.

He noted that third-quarter revenues increased 7.3 percent, and net customer additions increased more than 50 percent year over year. “Our objective in these discussions is to improve our balance sheet, which will better position Charter for the future, while we continue to focus on delivering quality service to our customers and growing our business,” Smit added.

Charter noted in December that its cash and cash equivalents on Dec. 10 were in excess of $900 million, and that the funds were available to pay operating costs and expenses.

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