HomeMy WebLinkAboutItem 06.i/ I
10-5-15 Item No.
Proposed Transfer of Cable Franchise as part of the potential
merger with Time Warner Cable
Proposed Action
Staff recommends adoption of the following motion: Approve the proposed transfer of the
cable franchise currently held by Cc viii operating, Ilc d/b/a charter communications.
Passage of this motion will result in approval of the transfer of the current cable franchise as
required for the proposed acquisition and merger with Time Warner Cable.
Overview
In May of this year, Charter Communications, Inc. and Time Warner Cable Inc. announced that
they have entered into an agreement to merge. This agreement awaits approval by the FCC.
If approved, each community holding a current franchise with Charter is requested to have
approved a resolution allowing the transfer. Charter requested this resolution on July 1, 2015.
FCC rules allow us a 120 day timeframe to review Charter's documents and respond.
Primary Issues to Consider
Communities could object to the transfer resolution based on financial
qualifications. Lakeville participated in a joint review of the financial qualifications
for this potential transfer.
Our franchise firm of Moss & Barnett reviewed the qualifications and prepared an
appropriate resolution to address the potential transfer.
Supporting Information
• Financial analysis for the transfer.
Susanna Palm
Communications Manager
Financial Impact: $
Budgeted: Y/N Source:
Related Documents (CIP, ERP, etc.):
Community Values
RESOLUTION NO.
APPROVING THE PROPOSED TRANSFER OF
THE CABLE FRANCHISE CURRENTLY HELD BY
CC VIII OPERATING, LLC D/B/A CHARTER COMMUNICATIONS
WHEREAS, CC VIII Operating, LLC (hereinafter referred to as "Grantee"), currently
holds a cable television franchise ("Franchise") granted by the City of Lakeville, Minnesota
("City").
WHEREAS, Grantee owns, operates and maintains a cable television system in the City
("System") pursuant to the terms of the Franchise.
WHEREAS, on May 23, 2015, Charter Communications, Inc. ("Charter
Communications"), the ultimate parent company of Grantee, directly and indirectly, with its
subsidiary CCH I, LLC ("New Charter"), entered into agreements with Advance/Newhouse
Partnership and A/NPC Holdings LLC (collectively "A/N"), the ultimate parent company of
Bright House Networks, LLC ("BHN"), Time Warner Cable Inc. ("TWC"), and Liberty
Broadband Corporation ("Liberty") (collectively "the Agreements"), the purpose of which are to
effectuate the acquisition of BHN and merge with TWC (the "Transactions"); and
WHEREAS, Charter Communications will merge with and into New Charter, and all
shares of Charter Communications will be converted into shares of New Charter, and New
Charter will assume the Charter Communications name; and
WHEREAS, pursuant to the Agreements, A/N, TWC shareholders, and Liberty will
acquire ownership interests in New Charter; and
WHEREAS, on or about July 1, 2015 the City received from Grantee, FCC Form 394 -
Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable
Television Franchise ("Application"); and
WHEREAS, Federal law, and the terms of the Franchise require that the City take action
to consider the Application within one hundred twenty (120) days of the date of receipt, or on or
before October 29, 2015; and
WHEREAS, Minnesota state law and the Franchise require the City's advance written
consent prior to the Grantee's change in ownership; and
WHEREAS, as a result of the proposed Transactions Grantee has requested consent
from the City to the proposed change in ownership; and
WHEREAS, the City has reviewed the proposed Transactions, and based on information
provided by Grantee and information otherwise publicly available, the City has elected to
approve the proposed Transactions subject to certain conditions as set forth herein.
1
29402630
NOW, THEREFORE, the City of Lakeville, Minnesota hereby resolves as follows:
1. All of the above recitals are hereby incorporated by reference as if fully set forth
herein.
2. The Franchise is in full force and effect and Grantee is the lawful holder of the
Franchise.
3. The City hereby consents and approves the proposed Transactions.
4. Grantee will be the lawful holder of the Franchise after completion of the
Transactions.
5. The City's consent to the Transactions shall not serve to waive any rights City
may have under applicable law to hold Grantee liable for any and all liabilities, known
and unknown, under the Franchise.
6. In the event the proposed Transactions contemplated by the foregoing resolution
are not completed, for any reason, the City's consent shall not be effective and shall be
null and void.
This Resolution shall take effect and continue and remain in effect from and after the date
of its passage, approval, and adoption.
Approved by the City of Lakeville, Minnesota this 5th day of October, 2015.
ATTEST:
Its:
29402630
CITY OF LAKEVILLE, MINNESOTA
Its:
INTRODUCTION
This report has been provided by Moss & Barnett, a Professional Association, for the
express purpose of evaluating FCC Form 394 ("Form 394") - Application for Franchise
Authority Consent to Assignment or Transfer of Control of Cable Television Franchise
("Application").
Moss & Barnett has been retained by a number of jurisdictions including the City
(hereinafter collectively referred to as "City" or "Cities") to review the Application.
Pursuant to each jurisdiction's Franchise, this proposed transfer is prohibited without the
written consent of the City. Federal law provides the City with a period of 120 days to examine
the legal, technical and financial qualifications of the proposed transferee. The Cities have
directed that this report shall focus solely on the financial qualifications of Charter
Communications, Inc. as more fully described herein. In addition to local franchise
requirements, the following provisions of Federal law and State law govern the actions of the
City in acting on the request for approval of the proposed transfer.
FEDERAL LAW
The Cable Communications Policy Act of 1984, as amended by the Cable Consumer
Protection and Competition Act of 1992 and the Telecommunications Act of 1996 ("Cable
Act"), provides at Section 617 (47 U.S.C. § 537):
Sales of Cable Systems. A franchising authority shall, if the franchise requires
franchising authority approval of a sale or transfer, have 120 days to act upon
any request for approval of such sale or transfer that contains or is accompanied
by such information as is required in accordance with Commission regulations
and by the franchising authority. If the franchising authority fails to render a
final decision on the request within 120 days, such request shall be deemed
granted unless the requesting party and the franchising authority agree to an
extension of time.
Further, the Federal Communications Commission ("FCC") has promulgated
regulations governing the sale of cable systems. Section 76.502 of the FCC's regulations (47
C.F.R. § 76.502) provides:
Time Limits Applicable to Franchise Authoriiy Consideration of Transfer
Applications.
(a) A franchise authority shall have 120 days from the date of
submission of a completed FCC Form 394, together with all exhibits, and any
additional information required by the terms of the franchise agreement or
applicable state or local law to act upon an application to sell, assign, or
otherwise transfer controlling ownership of a cable system.
2938723v1
(b) A franchise authority that questions the accuracy of the
information provided under paragraph (a) must notify the cable operator within
30 days of the filing of such information, or such information shall be deemed
accepted, unless the cable operator has failed to provide any additional
information reasonably requested by the franchise authority within 10 days of
such request.
(c) If the franchise authority fails to act upon such transfer request
within 120 days, such request shall be deemed granted unless the franchise
authority and the requesting party otherwise agree to an extension of time.
STATE LAW
Minnesota Statutes Section 238.083 provides:
Sale or Transfer offranchise.
Subd. 1. Fundamental corporate change defined. For purposes of this section,
'fundamental corporate change" means the sale or transfer of a majority of a
corporation's assets; merger, including a parent and its subsidiary corporation;
consolidation; or creation of a subsidiary corporation.
Subd. 2. Written approval of franchising authority. A sale or transfer of a
franchise, including a sale or transfer by means of a fundamental corporate
change, requires the written approval of the franchising authority. The parties to
the sale or transfer of a franchise shall make a written request to the franchising
authority for its approval of the sale or transfer.
Subd. 3. Repealed, 2004 c 261 art 7 s 29
Subd. 4. Approval or denial of transfer request. The franchising authority shall
approve or deny in writing the sale or transfer request. The approval must not be
unreasonably withheld.
Subd. S. Repealed, 2004 c 261 art 7 s 29
Subd. 6. Transfer of stock; controlling interest defined. Sale or transfer of
stock in a corporation so as to create a new controlling interest in a cable
communication system is subject to the requirements of this section.
The term "controlling interest" as used herein is not limited to majority stock ownership,
but includes actual working control in whatever manner exercised.
2
2938723v1
FINANCIAL QUALIFICATIONS
I. SCOPE OF REVIEW
Charter Communications, Inc., a Delaware corporation ("Charter"), is the ultimate parent
company of the current holder of the cable television franchises (hereinafter referred to as the
"Franchise Agreement") granted by the Cities (collectively referred to herein as the "City").
Under the Franchise Agreement, Charter, through its subsidiaries, operates cable television
systems (the "System") that provide cable services and other communication services in the City.
Charter has requested the City's approval of the proposed pro forma transfer of control of
Charter to CCH I, LLC, a Delaware limited liability company ("New Charter"), as part of the
acquisition by New Charter of the cable systems owned and operated by Bright House Networks,
LLC ("BHN") and Time Warner Cable Inc. ("TWC").
At the request of the City, Moss & Barnett, PA has reviewed selected financial
information that was provided by Charter and New Charter or publicly available to assess the
financial qualifications of New Charter, as a new publicly traded entity, following completion of
the proposed transfer of control and the acquisition of the TWC and BHN cable systems.
The financial information that was provided or available through other public sources and
to which our review has been limited, consists solely of the following financial information
(hereinafter referred to collectively as the "Financial Statements"):
1. FCC Form 394 "Application for Franchise Authority Consent to Assignment or
Transfer of Control of Cable Television Franchise" dated July 1, 2015, provided by Charter
Communications, Inc. (the "Application"), along with such other exhibits as provided therewith;
2. Form 10-K for Charter Communications, Inc. filed with the Securities and
Exchange Commission on February 24, 2015, for the fiscal year ended December 31, 2014;
3. Form 8-K for Charter Communications, Inc. filed with the Securities and
Exchange Commission on March 31, 2015 that includes the Contribution Agreement dated
March 31, 2015 by which Charter would acquire the BHN cable systems;
4. Form 8-K for Charter Communications, Inc. filed with the Securities and
Exchange Commission on May 23, 2015 that includes the Agreement and Plan of Mergers under
which Charter will acquire the TWC cable systems;
5. Form 10-Q for Time Warner Cable Inc. filed with the Securities and Exchange
Commission on July 30, 2015 for the fiscal quarter and six-month period ended June 30, 2015;
6. Form 10-Q for Charter Communications, Inc. filed with the Securities and
Exchange Commission on August 4, 2015 for the fiscal quarter and six-month period ended June
30, 2015;
7. The audited financial statements of Charter Communications, Inc. and
subsidiaries as of December 31, 2014 and 2013, including Consolidated Balance Sheets as of
December 31, 2014 and 2013, Consolidated Statements of Operations, Cash Flows and Change
3
2938723v1
in Shareholders' Equity for the years ended December 31, 2014, 2013 and 2012, and the
Independent Auditors' Report of KPMG LLP dated February 23, 2015;
8. The Agreement and Plan of Mergers dated May 23, 2015 by and among Time
Warner Cable Inc.; Charter Communications, Inc.; CCH I, LLC; Nina Corporation I, Inc.; Nina
Company II, LLC; and Nina Company III, LLC and related transaction documents (the
"Agreement and Plan of Mergers");
9. The Contribution Agreement dated March 31, 2015, as amended on May 23,
2015, by and among Advance/Newhouse Partnership; A/NPC Holdings LLC; CCH I, LLC; and
Charter Communications Holdings, LLC (a subsidiary of Charter Communications, Inc.)(the
"Contribution Agreement");
10. The Investment Agreement dated May 23, 2015 by and among Charter
Communications, Inc., CCH I, LLC, and Liberty Broadband Corporation; and
11. Such other information as is publicly available.
Our procedure is limited to providing a summary of our analysis of the Financial
Statements in order to facilitate the City's assessment of the financial capabilities of New Charter
to control and operate the System in the City. We have not requested any additional financial
information from Charter other than what is available publicly due to Federal securities
regulations that restrict financial information disclosures by public companies.
IL OVERVIEW OF TRANSACTION
On March 31, 2015, Charter entered into a Contribution Agreement to acquire the BHN
membership interests and cable business.' On May 23, 2015, this Contribution Agreement was
amended to integrate the BHN transaction into Charter's acquisition of the TWC cable business.2
Under the BHN transaction, the Charter acquisition price includes approximately $2 billion in
cash, $2.5 billion of preferred Charter ownership that includes a 6% coupon return for its owners
and upon completion of the transactions, approximately 34.3 million shares of New Charter
common stock with an estimated value of approximately $6 billion.3
On May 23, 2015, Charter entered into the Agreement and Plan of Mergers pursuant to
which Charter agreed to acquire the cable assets of TWC through a series of merger
transactions.4 Upon completion of the mergers, New Charter will become a new publicly traded
entity and wholly own the TWC and Charter cable business systems.s As a result of the merger,
the TWC shareholders will receive cash in an amount between $100 and $115 per TWC common
share and New Charter common stock, except for the TWC stock owned by Liberty Broadband
' Form 8-K for Charter Communications, Inc. filed with the Securities and Exchange Commission on March 31,
2015 ("March Form 8-K7) at p. 1.
2 Form 8-K for Charter Communications, Inc. filed with the Securities and Exchange Commission on May 23, 2015
("May Form 8-K") at p. 1.
3 Form 10-Q for Charter Communications, Inc. filed with the Securities and Exchange Commission on August 4,
2015 for the fiscal quarter and six-month period ended June 30, 2015 ("Form 10-Q") at p. 5.
4 May Form 8-K at p. 1.
5 Form 10-Q at p. 4.
4
2938723v1
Corporation and Liberty Interactive Corporation whose TWC shares will be converted fully into
New Charter stock.6 The aggregate enterprise value of TWC is projected to be approximately
$79 billion.?
As part of the above merger and acquisition transactions, Charter, the ultimately parent
company of the holder of the System serving the City, will use its subsidiary, CCH I, LLC, as
defined herein as New Charter to facilitate the transactions.8 Upon consummation of the
transactions, Charter will merge with and into New Charter creating a pro forma change of
control of the System serving the City for which Charter is seeking the City's approval.9
In order to complete the transactions, Charter will need a significant amount of cash.
Charter estimates, at a minimum, that approximately $30 billion of cash will be needed to
complete the transactions as set forth above. 10 Charter's sources of cash include (i) $4.3 billion
from Liberty Broadband Corporation through the issuance of New Charter stock, (ii) $15.5
billion of senior secured notes, (iii) $3.8 billion of senior secured bank loans, (iv) $5.2 billion for
incremental senior secured term loan facilities and unsecured notes, (v) $1.7 billion from a
revolving loan facility and (vi) commitments for an additional $4.3 billion bridge loan facility, if
necessary." New Charter's $15.5 billion senior secured notes mature starting in 2020 and ending
in 2055 and bear interest between 3.579% and 6.834%.12 In total the credit facilities, if fully
extended, would provide almost $35 billion of cash. In addition, as part of the transactions, New
Charter will be assuming approximately $23 billion of TWC debt, which is in addition to
Charter's $13.9 billion of long-term debt as of June 30, 2015.13
This transaction is subject to many conditions including federal regulatory approval,
performance covenants, legal and tax opinions, and other requirements of the parties that are
common for a transaction of this type and size. 14 Both TWC and Charter are subject to
termination fees of $1 billion to $2 billion upon the termination of the Agreement and Plan of
Mergers under certain circumstances. 15
As a result of the transactions described above, Charter's current shareholders, who
include Liberty Broadband Corporation and Berkshire Hathaway, Inc., which own 25.74% and
5.53% of the Charter's Class A Common stock, respectively, will continue to own a majority of
6 Id.
' Id.
8 FCC Form 394 "Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable
Television Franchise" dated July 1, 2015, provided by Charter Communications, Inc. (the "Application") at Exhibit
1.
9 Id.
10 Form 10-Q at p. 25.
11 Form 10-Q at p. 5.
12 Charter Communications, Inc. Press Release — July 23, 2015.
13 Form 10-Q at p. 1 and Form 10-Q for Time Warner Cable Inc. filed with the Securities and Exchange
Commission on July 30, 2015 for the fiscal quarter and six-month period ended June 30, 2015 at p. 22.
14 Agreement and Plan of Mergers dated May 23, 2015 by and among Time Warner Cable Inc.; Charter
Communications, Inc.; CCH I, LLC; Nina Corporation I, Inc.; Nina Company II, LLC; and Nina Company III, LLC
at pp. 94 -97.
15 Id. at p. 100.
5
2938723v1
the outstanding equity interests of New Charter. 16 BHN owners and the TWC shareholders will
own a minority interest in New Charter after the transactions. 17
The transactions are expected to close in late 2015.18
III. OVERVIEW OF CHARTER AND NEW CHARTER
At the current time, Charter Communications, Inc. provides full service communications
and cable services, along with other video programming, Internet services, and voice services to
residential and commercial customers in certain markets in the United States and is the 7th largest
cable provider in the United States. 19 Charter currently has over 4.2 million residential cable
subscribers and operates in 28 states with over 23,500 employees.20
New Charter was formed on June 9, 2003 as a Delaware limited liability company. 21
After the transactions, New Charter will assume all of Charter's existing business and acquire the
TWC and BHN communication businesses. 22 After the transactions, it is projected that New
Charter will be the 3rd largest cable provider in the United States.23 New Charter's cable system
will include approximately 17.3 million video customers located in 41 states in the United
States.24
Cable providers and telecommunication companies operate in a competitive environment
and the financial performance of cable television operators, like New Charter, are subject to
many factors, including, but not limited to, the general business conditions, programing costs,
incumbent operators, digital broadcast satellite service, technology advancements, burdensome
service contracts, and customer preferences, as well as competition from multiple sources, which
provide and distribute programming, information, news, entertainment and other
telecommunication services .25 New Charter has no operating history as a stand-alone company.
New Charter, as a result of the transaction, will be a highly leveraged company, which may
reduce its ability to withstand prolonged adverse business conditions and there is no assurance
that New Charter will be able to obtain financing in the future to cover its cash flow and debt
financing needs.26 The cable business is inherently capital intensive, requiring capital for the
construction and maintenance of its communications systems. Each of these factors could have a
significant financial impact on New Charter and its ability to continue to operate the System.
16 Application at Exhibit 3.
17 Id. at July 1, 2015 Cover Letter from Adam E. Falk, Senior Vice President, State Government Affairs, Charter
Communications, Inc.
18 Press Release of Time Warner Cable Inc. dated May 26, 2015.
19 Application at Exhibit 9.
20 Id.
21 Application at p. 3.
22 Form 10-Q at p. 4-5.
23 Application at Exhibit 1.
24 Id.
2s Form 10-K for Charter Communications, Inc. filed with the Securities and Exchange Commission on February 24,
2015, for the fiscal year ended December 31, 2014 at pp. 19-25
26 Form 10-Q at pp. 5, 8-9.
6
2938723v1
V. FINDINGS
As part of our review, we have analyzed the Financial Statements, including the historical
financial statements of Charter. New Charter did not provide us with projected statements of
cash flow and income or a balance sheet for the combined Charter/TWC/BHN operations. The
historical audited financial statements do not include transaction costs and ongoing additional
costs and synergies of the new New Charter operation, including the new debt and the assets and
operations of TWC and BHN.
Since New Charter combined and projected financial statements are not available, we are
reporting our Findings hereunder based upon Charter's historical information with some
comments regarding certain known financial aspects of New Charter.
1. Analysis of Financial Statements. Federal law and FCC regulations provide
franchising authorities, such as the City, with limited guidance concerning the evaluation of the
financial qualifications of an applicant for a cable franchise. In evaluating the financial
capabilities of a cable operator, we believe it is appropriate to consider the performance of an
applicant based on the applicant's historical performance plus its projected or budgeted financial
information along with its financial capabilities (financing). We believe a general review of the
historical Charter financial information may provide some insight into the general financial
operations of New Charter with respect to the Application, but we note that there are many
unanswered questions regarding New Charter's operations going forward.
New Charter's operations will include both cable television video services and non -cable
television services. According to Charter's financial statements, Charter's video service
compromised approximately fifty percent (50%) of its revenue in 2014 and 2013.27 The Charter
financial information discussed below includes all of the Charter operations, including the non -
cable television video services, but excludes TWC and BHN financial information. We have
analyzed historical financial statements as of June 30, 2015 and December 31, 2014 and 2013 in
providing the information in this Section. As described below, these financial statements do not
reflect the post -merger fair value of New Charter's assets and liabilities, but rather, the assets and
liabilities are presented based on Charter's historical information.
2. Specific Financial Statement Data and Analysis.
(a) Assets. Charter had (i) current assets of $456 million, $371 million, and
$322 million; (ii) working capital of a negative $1,180 million, a negative $1,264 million,
and a negative $1,145 million; and (iii) total assets of $17,319 million, $24,550 million,
and $17,295 million as of June 30, 2015 and December 31, 2014 and 2013,
respectively. 28 Working capital, which is the excess of current assets over current
liabilities, is a short-term analytical tool used to assess the ability of a particular entity to
meet its current financial obligations in the ordinary course of business. The trend shows
that Charter, as a stand-alone company, has significant negative working capital from
December 31, 2013 to June 30, 2015, and suggests that Charter's cash flow may be
27 Form 10-K at p. 46.
28 Form 10-K at p. F-3 and Form 10-Q at p. 1.
7
2938723v1
unable to meet is current obligations.29 Charter's current ratio (current assets divided by
current liabilities) as of June 30, 2015, of 0.28:1 is well below a generally recognized
standard of 1:1 for a sustainable business operation. 30 Charter's inflated total assets as of
December 31, 2014 reflect restricted cash relating to a potential transaction with Comcast
Corporation that has since been terminated.31
(b) Liabilities and Net Equity. Charter had (i) current liabilities of $1,636
million, $1,635 million and $1,467 million; and (ii) deferred taxes of $1,745 million,
$1,674 million and $1,431 million; and (iii) long term debt of $13,896 million, $21,023
million and $14,181 million as of June 30, 2015 and December 31, 2014 and 2013,
respectively. 32 Charter's long term debt as of December 31, 2014 reflects the credit
facilities relating to a potential transaction with Comcast Corporation that has since been
terminated .33 New Charter's long-term debt after the transaction is estimated to be at or
over $65 billion which will have a significant impact on New Charter's balance sheet. 34
The specific interest rates of the new indebtedness vary and some of Charter's existing
debt is subject to interest rates in excess of 8% per annum. 35 If New Charter's annual
interest rate averages six percent (6%), New Charter's annual interest expense would be
approximately $4 billion (and this does not include the required principal payments under
the debt facilities). This additional debt will require New Charter to generate additional
cash flow, including through its operations, to fund its debt service. New Charter's initial
debt leverage will likely be greater than 5.0 times its earnings before interest, taxes,
depreciation and amortization, which is significantly higher than competitors Comcast
and DirecTV, but in line with smaller operators including Cablevision, Suddenlink, and
Mediacom.36 In order to close these transactions, New Charter will be required to obtain
certain levels of financing which, if not received, would terminate the above described
transactions.
(c) Income and Expense. Charter reported (i) revenue of $4,792 million and
$9,108 million; (ii) operating expenses of $4,274 million and $8,137 million; and (iii)
operating income of $518 million and $971 million for the six-month period ending June
30, 2015 and the year ending December 31, 2014, respectively. 37 Charter posted overall
net losses for both periods.38 We note that Charter has a long history of reporting net
losses and has remained an operating entity solely as a result of equity funding and
financing.39 There is no guaranty that the transactions will allow New Charter to fund its
operations or make capital improvements on a going forward basis. The ability to
generate cash is important for Charter due to its highly leveraged operations. As a result
of the merger transactions, New Charter will likely incur significant non-recurring
29 Id.
30 Id.
31 Form 10-K at p. F-3.
32 Form 10-K at p. F-3 and Form 10-Q at p. 1.
33 Form 10-K at p. F-3.
34 Form 10-Q at p. 5 and Form 10-Q at p. 1.
35 Form 10-K at p. F-17.
36 Form 10-K at F-3, F-4.
37 Form 10-K at p. F-4 and Form 10-Q at p. 2.
38 Id.
39 Form 10-K at p. 27.
8
2938723v1
expenses which may negatively affect New Charter's short-term income statement
performance. In addition, as a result of the transaction, New Charter may be required to
incur significant capital expenditures for the assimilation of its new business and
customers along with additional programing costs to maintain its current programming in
the future. We have not been provided with the estimated cost of the integration of TWC
and BHN into New Charter or the benefit of the synergies of the acquisitions.
VI. SUMMARY
Using the FCC Form 394 to establish an absolute minimum standard of financial
qualifications that a proposed applicant must demonstrate in order to be qualified as the
successor operator of the System, Charter and New Charter have the burden of demonstrating to
the City's satisfaction that New Charter has "sufficient net liquid assets on hand or available
from committed resources" to consummate the transaction and operate the System, together with
its newly acquired operations, for three (3) months. This minimum standard is not easy to apply
to the newly merged highly leveraged company with significant transaction and ongoing service
costs. In general, we have also considered the standard practice of lenders that requires
borrowers to maintain certain debt covenants on new and outstanding debt, including certain
cash flow requirements, financial ratios and adequate security, in order to make and maintain a
loan. We note that if a borrower does not meet these lender requirements at inception, the loan
would not be initially funded (and the proposed transaction would not be completed).
Based solely on Charter's financial information that we reviewed, Charter's public filings
show that New Charter has receive funding and sufficient debt and equity commitments to
consummate the Agreement and Plan of Mergers. Based on the foregoing and limited strictly to
the financial information analyzed in conducting this review, we do not believe that Charter's
request for transfer of control of the ownership of the System to New Charter can reasonably be
denied based solely on a lack of financial qualifications of New Charter. This assumes that
financing to consummate the transactions is obtained by New Charter so that New Charter will
have the funds to acquire and operate the System for at least some initial period of time. The
failure to obtain the financing would result in the termination of the Agreement and Plan of
Mergers and proposed transfer of control. Due to the many uncertainties and lack of information
regarding the proposed financing and future operations, there is not enough information that has
been made available to review to make any conclusions regarding the financial qualification of
New Charter's ability to own and operate the System after the acquisition and initial operating
period.
In the event the City elects to proceed with approving the proposed transfer of control,
the assessment of New Charter's financial qualifications should not be construed in any way to
constitute an opinion as to the financial capability or stability of New Charter to (i) operate under
the Franchise Agreement, (ii) operate its other operations, or (iii) successfully consummate the
transactions as contemplated in the Agreement and Plan of Mergers. The sufficiency of the
procedures used in making an assessment of New Charter's financial qualifications and its
capability to operate the System is solely the responsibility of the City. Consequently, we make
no representation regarding the sufficiency of the procedures used either for the purpose for
which this analysis of financial capabilities and qualifications was requested or for any other
purpose.
9
2938723v1
Lastly, in order to ensure compliance with its obligations to operate the System, we
recommend that the City maintain any performance bonds or corporate parent guaranty, if any,
required under any City Franchise Agreement. If security funds are not required in the City
Franchise Agreement, the City may wish to consider pursuing a corporate parent guaranty from
New Charter in a form as set forth in Exhibit A or as otherwise mutually agreeable to New
Charter and the City. If the City is interested in pursuing this option please contact Moss &
Barnett to discuss the options that may be available to the City under its existing Franchise and
applicable law.
RESOLUTION REGARDING THE PROPOSED TRANSACTION
Moss & Barnett has prepared a proposed Resolution approving the Transactions for the
City's review and consideration - attached hereto as Exhibit B.
10
2938723v1
EXHIBIT A
CORPORATE PARENT GUARANTY
THIS AGREEMENT is made this _day of , 201_ (this
"Agreement"), by and among CCH 1, LLC, a Delaware limited liability company (the
"Guarantor"), the City of , ("Franchising Authority"), and
P-1
WITNESSETH
("Company").
WHEREAS, on , 20 the Franchising Authority adopted
Ordinance No. granting a Cable Television Franchise which is now held by
(the "Franchise"), pursuant to which the Franchising Authority has
granted the rights to own, operate, and maintain a cable television system ("System"); and
WHEREAS, pursuant to the Agreement and Plan of Mergers dated May 23, 2015 by and
among Time Warner Cable Inc.; Charter Communications, Inc.; CCH 1, LLC; Nina Corporation
I, Inc.; Nina Company II, LLC; and Nina Company III, LLC (the "Agreement"), Charter
Communications, Inc. will transfer control of the Company to the Guarantor and the Guarantor
will acquire control of the Company as an indirect subsidiary of Guarantor as a result of Charter
Communications, Inc. merger under the Agreement ("Change of Control"); and
WHEREAS, Company and Charter Communications, Inc. have requested the consent to
the Change of Control in accordance with the requirements of Section of the Franchise; and
WHEREAS, pursuant to Resolution No. , dated ,
20, Franchising Authority conditioned its consent to the Change of Control on the issuance
by Guarantor of a corporate parent guaranty guaranteeing certain obligations of Company under
the Franchise.
NOW, THEREFORE, in consideration of the foregoing premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, in
consideration of the approval of the Change of Control, Guarantor hereby unconditionally and
irrevocably agrees to provide all the financial resources necessary for the observance, fulfillment
and performance of the obligations of the Company under the Franchise and also to be legally
liable for performance of said obligations in case of default by or revocation or termination for
default of the Franchise.
This Agreement, unless terminated, substituted, or canceled, as provided herein, shall
remain in full force and effect for the duration of the term of the Franchise.
Upon substitution of another Guarantor reasonably satisfactory to the Franchising
Authority, this Agreement may be terminated, substituted, or canceled upon thirty (30) days prior
written notice from Guarantor to the Franchising Authority and the Company. Such termination
shall not affect liability incurred or accrued under this Agreement prior to the effective date of
such termination or cancellation.
A-1
2938723v1
CCH I, LLC
Its:
STATE OF )
ss.
COUNTY OF
The foregoing instrument was subscribed and sworn to before me this day of
20 , by , the
of on behalf of the
A-2
2938723v1
EXHIBIT B
RESOLUTION
In
2938723v1
RESOLUTION NO.
APPROVING THE PROPOSED TRANSFER OF
THE CABLE FRANCHISE CURRENTLY HELD BY
CC VIII OPERATING, LLC D/B/A CHARTER COMMUNICATIONS
WHEREAS, CC VIII Operating, LLC (hereinafter referred to as "Grantee"), currently
holds a cable television franchise ("Franchise") granted by the City of
,Minnesota ("City").
WHEREAS, Grantee owns, operates and maintains a cable television system in the City
("System") pursuant to the terms of the Franchise.
WHEREAS, on May 23, 2015, Charter Communications, Inc. ("Charter
Communications"), the ultimate parent company of Grantee, directly and indirectly, with its
subsidiary CCH I, LLC ("New Charter"), entered into agreements with Advance/Newhouse
Partnership and A/NPC Holdings LLC (collectively "A/N"), the ultimate parent company of
Bright House Networks, LLC ("BHN"), Time Warner Cable Inc. ("TWC"), and Liberty
Broadband Corporation ("Liberty") (collectively "the Agreements"), the purpose of which are to
effectuate the acquisition of BHN and merge with TWC (the "Transactions"); and
WHEREAS, Charter Communications will merge with and into New Charter, and all
shares of Charter Communications will be converted into shares of New Charter, and New
Charter will assume the Charter Communications name; and
WHEREAS, pursuant to the Agreements, A/N, TWC shareholders, and Liberty will
acquire ownership interests in New Charter; and
WHEREAS, on or about July 1, 2015 the City received from Grantee, FCC Form 394 -
Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable
Television Franchise ("Application"); and
WHEREAS, Federal law, and the terms of the Franchise require that the City take action
to consider the Application within one hundred twenty (120) days of the date of receipt, or on or
before October 29, 2015; and
WHEREAS, Minnesota state law and the Franchise require the City's advance written
consent prior to the Grantee's change in ownership; and
WHEREAS, as a result of the proposed Transactions Grantee has requested consent
from the City to the proposed change in ownership; and
WHEREAS, the City has reviewed the proposed Transactions, and based on information
provided by Grantee and information otherwise publicly available, the City has elected to
approve the proposed Transactions subject to certain conditions as set forth herein.
2938723v1
NOW, THEREFORE, the City of , Minnesota hereby resolves
as follows:
1. All of the above recitals are hereby incorporated by reference as if fully set forth
herein.
2. The Franchise is in full force and effect and Grantee is the lawful holder of the
Franchise.
3. The City hereby consents and approves the proposed Transactions.
4. Grantee will be the lawful holder of the Franchise after completion of the
Transactions.
5. The City's consent to the Transactions shall not serve to waive any rights City
may have under applicable law to hold Grantee liable for any and all liabilities, known
and unknown, under the Franchise.
6. In the event the proposed Transactions contemplated by the foregoing resolution are not
completed, for any reason, the City's consent shall not be effective and shall be null and
void.
This Resolution shall take effect and continue and remain in effect from and after the date
of its passage, approval, and adoption.
Approved by the City of , Minnesota this day of ,
2015.
ATTEST:
CITY OF MINNESOTA
By: By:
Its: Its:
2
2938723v1