SEC Company Response from CHARTER COMMUNICATIONS, (CHTR) — Jun 17, 2005
CHARTER COMMUNICATIONS, INC. /MO/ (CHTR) (CIK 0001091667)
Date: June 17, 2005 · CIK: 0001091667 · Accession: 0000950123-05-007502
AI Filing Summary & Sentiment
File numbers found in text: 333-121136
Referenced dates: June 10, 2005, June 7, 2005, March 10, 2005
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LETTER TO THE SEC
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Charter Communications, Inc.
12405 Powerscourt Drive
St. Louis, Missouri 63131
June 17, 2005
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington DC 20549
Division of Corporate Finance
Re:
Response to SEC Comment Letter dated June 10, 2005
Ladies and Gentlemen:
We are writing in response to your letter to Charter Communications, Inc. (“Charter,” “we” or
the “Company”) dated June 10, 2005. We have considered the Staff’s comments relating to our
registration statement on Form S-1 (file no. 333-121136). We will be filing an amendment to the
registration statements upon resolution of the items raised in the letter and discussed further
below. We have set forth below our responses to each of the comments raised in the letter. At the
Staff’s suggestion, we have also attached hereto a draft of the registration statement which
reflects the revisions discussed below.
*****
1.
Please provide us with the following written representations from Charter, Citigroup, and
their counsel, as applicable:
•
the contemplated offering is a bona fide distribution by Charter of its Class A
common stock into the open market;
•
Citigroup will not enter into any arrangements or understandings, directly or
indirectly, with the purchasers of Class A common shares in connection with its sales
efforts regarding the return, loan, or other similar use of the Class A common shares;
and
•
the offering will commence immediately after the date of effectiveness and is not a
continuous offering.
The following representations are made to the Staff:
•
Charter represents, and Citigroup has represented to Charter, that the contemplated
offering is a bona fide distribution by Charter of its Class A common stock into the
open market;
•
Citigroup has represented to Charter that it will not enter into any arrangements
or understandings, directly or indirectly, with the purchasers of Class A common
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shares in connection with its sales efforts regarding the return, loan, or other
similar use of the Class A common shares; and
•
Charter represents, and Citigroup has represented to Charter, that if the offering
has not already commenced prior to the date of effectiveness, the offering will
commence immediately after the date of effectiveness, and is not a continuous
offering. As discussed more fully below, Citigroup expects that the marketing period
for the offering will last not more than 30 days, and probably not more than 10 days,
during which time Citigroup will build a book of demand for the Class A common shares
by offering them at a fixed price. The offer will price all at once, when Citigroup
determines that the demand for the shares has reached its peak.
Citigroup would like us to point out to the Staff, however, that Citigroup’s representation in
the second bullet above should not preclude an arrangement by Citigroup to borrow shares from
holders of Charter’s Class A common shares that did not purchase in the offering (the “Unrelated
Share Lenders”). As we described in our prior correspondence to the Staff, it is expected that
Citigroup will facilitate hedging by Note investors by either one of two alternatives that we have
described and diagrammed in various correspondence to the Staff, including the Exhibit to our
response letter dated March 10, 2005. Under “alternative two” depicted in the Exhibit, Citigroup
initially proposed to borrow shares from investors in the offering to establish a stock lending
relationship between the Note investors and Citigroup, and not to close out any open short
positions that those Note investors may have. Citigroup continues to believe that it would be
appropriate for Citigroup to borrow shares from the investors in the offering to establish hedging
positions by Note investors (and not to close out open short positions). However, in light of the
Staff’s concern over and apparent discomfort with this issue, if note holders elect to implement
“alternative two,” Citigroup will borrow shares, not from the purchasers in the offering, but
instead from the Unrelated Share Lenders.
2.
In your response letter, please tell us the approximate percentage or number of 5.875%
noteholders who currently have open short positions.
While neither the Company nor Citigroup has any way to independently verify the number of Note
holders who currently have open short positions, Citigroup estimates that approximately 80% of the
Note holders currently have open short positions in Charter’s Class A common stock. Citigroup
believes, however, that many of the investors that do have open short positions in Charter’s Class
A common stock have smaller short positions than they would like to have. Such investors may wish
to participate in the registered stock loan facility both to create a larger open short position in
Charter’s Class A common stock and/or to create new short positions that have a lower cost of
borrow in comparison to their existing short positions (following which they would be expected to
close out their existing short positions with shares purchased in the open market).
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3.
In your response letter, please provide us with the following information regarding the
contemplated offering procedures:
•
identify the nature of purchasers to whom Citigroup intends to offer the registered
Class A common shares, particularly given that persons with open short positions are
now prohibited from purchasing the Class A common shares in the offering, and provide
the names of all currently contemplated offerees;
•
explain in greater detail how Citigroup intends to locate or identify purchasers
interested in buying shares not for the purpose of closing out short positions or
facilitating the closing of another person’s short positions (e.g., describe the sales
methods that Citigroup will use to market the shares);
•
explain when Citigroup expects to determine the total number of shares that will
actually be sold (e.g., indicate whether Citigroup will make this determination prior
to effectiveness or after effectiveness);
•
describe in greater detail when Citigroup will compile the “Holder List” and ask
each holder on the list if they have open short positions, as indicated in the
response letter;
•
describe in greater detail when during the offering period Citigroup will make the
inquiries with its prime brokerage and share lending desks regarding the “Holder
List,” as indicated in the response letter (also indicate the frequency with which
Citigroup will make such inquiries); and
•
describe Charter’s and Citigroup’s intentions with respect to the offering if the
borrowed Class A common shares cannot be sold at the contemplated fixed offering price
(e.g., clarify whether Citigroup intends to return the borrowed but unsold shares to
Charter; under the share lending agreement, such returned shares presumably cannot be
borrowed again for future sales).
We have been advised by Citigroup as follows:
•
Citigroup intends to offer the registered Class A common shares to institutional
investors who have an interest in purchasing equity generally and more specifically
Charter shares. The offerees will include institutional clients of Citigroup,
current shareholders or affiliates of Charter who may wish to increase the size of
their investment. The offerees may also include other investors in Charter’s
industry or business. In addition, Citigroup may offer shares to “technical”
investors, who may purchase the shares as part of their overall trading or other
technical strategy. As we explained to the Staff in our submission dated June 7,
2005, Citigroup will implement procedures (the “Citigroup Procedures”) designed to
identify the class of persons prohibited from purchasing in the registered offering
(“Prohibited Persons”). Based on those procedures, Citigroup will not sell
registered shares to Prohibited Persons.
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Citigroup has indicated to us that it has not yet offered any of such potential
offerees, but that the names would come largely from its proprietary customer list,
the public disclosure of which could cause Citigroup to suffer harm. However, we
believe that the description of the class of offerees provided above is more relevant
and should be more useful than their specific identities.
•
Subject to the Citigroup Procedures referred to above, Citigroup will conduct the
offering of Class A common shares in the usual manner for an offering of equity
securities into the public market. Citigroup expects to orally solicit potential
investors in the shares during the offering period through its equity sales force.
As set forth in the Citigroup Procedures, Citigroup’s equity sales force will, prior
to confirming any sale of shares, orally inform such investor of the prohibitions on
sale and obtain in writing from such investor an acknowledgment that it is not a
Prohibited Person, and is not purchasing for the account of, or pursuant to an
arrangement or understanding with, a Prohibited Purchaser.
•
It is anticipated that Charter and Citigroup will determine the total number of
shares to be sold in the offering following effectiveness of the registration
statement.
•
As set forth in the Citigroup Procedures, prior to the commencement of the
offering, Citigroup will compile the Holder List and will ask each Note holder on the
Holder List whether it has an open short position, as well as making inquiries of its
share lending and prime brokerage desks. It is expected that Citigroup will update
and confirm such inquiry immediately prior to the pricing and sale of the shares in
the offering. Citigroup does not believe that more frequent updating of its list of
Prohibited Persons is necessary because it cannot see a reason why an investor would
close out an open short position in order to qualify to purchase shares in the
offering and then re-establish an open short position after purchasing the shares.
Such a strategy would require an investor to (1) buy in its pre-existing short
position, (2) return that stock to the share lender, (3) buy more stock in the
offering, (4) sell that stock, (5) borrow more stock and (6) sell that stock short,
all for the purpose of ending up where it started before engaging in all these
purchases and sales, which would expose the investor to considerable market risk for
no apparent purpose.
However, notwithstanding the foregoing, we and Citigroup would be happy to discuss
further with the Staff the nature of its concern on this issue so that we can
properly address it, and we would suggest that we arrange a meeting or a call as soon
as possible if the Staff has further concerns on this point.
•
Citigroup will borrow, and Charter will lend, shares of Charter’s Class A common
stock only in an amount that will be sold in the fixed price offering. Citigroup
will contract to sell the shares before borrowing them from Charter, so that if less
than the full 150 million shares of Class A common stock are sold in the fixed price
offering, Citigroup will not borrow that difference, which will
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be available for future borrowings. As disclosed in the Registration Statement,
Charter expects to file additional registration statements to the extent that less
than the full 150 million shares of Class A common stock are sold in this fixed price
offering.
4.
Please provide a detailed analysis of the applicability of and compliance with Regulation SHO
with respect to: (a) Citigroup’s sale of the 150 million borrowed shares of Charter’s Class A
common stock, and (b) CGML and its affiliates’ short sale transactions of such Class A common
stock (which, according to the first paragraph in the Underwriting section, will be executed
to facilitate transactions by which investors in the 5.875% notes will hedge their investments
in such notes). Please include in the analysis a detailed description of compliance with the
locate and delivery requirements of Rule 203, as well as the marking requirements of Rule
200(g).
Citigroup and its counsel have advised us as follows with respect to Citigroup’s proposed
hedging activities:
(a)
Applicability of and compliance with Regulation SHO of the borrowing by
Citigroup Global Markets Limited (“CGML”) of Charter’s Class A common stock subject to
the registration statement from Charter, the on-lending of the shares borrowed by CGML
to CGMI and the sale of such shares by Citigroup Global Markets Inc. (“CGMI”) to
investors pursuant to the registration statement:
i.
Borrowing by CGML of Charter shares subject to the
registration statement from Charter pursuant to the Stock Loan Agreement, and
the on-lending of the shares borrowed by CGML to CGMI
These transactions are not “sales” and therefore are not subject to Regulation
SHO.
ii.
Sale of Charter’s Class A common stock by CGMI to investors
pursuant to the registration statement
These would constitute “short sales” by CGMI, since it will be consummating such sales “by the
delivery of a security borrowed by, or for the account of” CGMI. Rule 202(a). CGMI would therefore
need to comply with (or qualify for an exemption from) Rules 203(b) (locate) and 200(g) (marking).
CGMI would comply with Rule 203(b), since it will have “borrowed the security, or entered into
a bona-fide arrangement to borrow the security ...” (i.e., from Charter via CGML). Rule 203(b)(1)(i).
Charter’s Class A common stock is not a “security registered on, or admitted to unlisted
trading privileges on, a national securities exchange. Therefore, short sales in Charter stock
would not be subject to Exchange Act Rule 10a-1. Rule 10a-1(a)(1)(i) The Commission has indicated
that short sale orders in such securities may be marked as “short.”
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(b)
Applicability of and Compliance with Regulation SHO of the borrowing by CGMI
of stock from the Unrelated Share Lenders and the loan of those shares to Note
investors , as per “Alternative Two”
These transactions are not “sales” and therefore not subject to Regulation SHO.
(c)
Applicability of and compliance with Regulation SHO of the successive
secondary market sales by Note investors to CGMI, supported by successive borrowings
by Note Investors of stock by such Note investors from CGMI, as per “Alternative Two.”
These would constitute “short sales” by the Note investors to CGMI, since the Note investors
will be consummating such sales “by the delivery of a security borrowed by, or for the account of”
such Note investors. Rule 202(a). CGMI would therefore need to comply with (or qualify for an
exemption from) Rules 203(b) (locate) and 200(g) (marking).
CGMI would comply with Rule 203(b), since it will be lending to the Note investors the shares
being sold short to CGMI, in each instance, and therefore “has reasonable grounds to believe that
the security can be borrowed....” by the Note investors (i.e., from CGMI) Rule 203(b)(1)(ii).
Charter Class A common stock is not a “security registered on, or admitted to unlisted trading
privileges on, a national securities exchange. Therefore, short sales in Charter stock would not
be subject to Exchange Act Rule 10a-1. Rule 10a-1(a)(1)(i) The Commission has indicated that short
sale orders in such securities may be marked as “short.”
In all instances, CGML and CGMI will appropriately document compliance as required by Rule
203(b)(1)(iii). CGML and CGMI will also comply, to the extent
required, with their obligations under Rule 203(b)(3).
In transaction (c) above, CGMI will not enter into short sale transactions for Note investors