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Cablevision, the New York cable-TV operator run by the Dolan family, scrapped a $3bn special dividend after discovering covenant violations that forced it to cancel $1bn of bonds sold to finance the pay-out.

Cablevision, which proposed the dividend after a failed bid by the family to take the group private, said in a Securities and Exchange Commission filing it had identified “certain technical covenant violations” under a bank loan agreement, and possible issues in other debt documentation.

The violations were discovered after Cablevision sold $1bn of bonds last week. The bonds were part of a $4.5bn loan package the company was seeking, with most coming from bank loans.

The company might opt to issue the debt and the $3bn special dividend next year once the covenant issues are resolved, said bankers in-volved. However, analysts said it was hard to predict Cablevision’s next move.

The company has made a number of strategic shifts in the past year. Charles Dolan, the founder, had a public dispute with his son James over the company’s direction and its loss-making high-definition TV business. Following the row, during which Mr Dolan tried to gain control of the company’s board by firing a number of directors, the loss-making Voom division was sold.

Cablevision later made a last-minute bid for bankrupt cable operator Adelphia, acquired by Time Warner and Comcast, the two biggest US cable operators.

Then, Mr Dolan made a $7.9bn bid to take the company private, but the plan was ditched after a special committee of independent board members failed to agree on the price offered by the Dolans. The $3bn dividend, which would have meant a $600m pay-out for the family, was the latest strategic plan.

Cablevision said its operations had not been affected by the covenant violations, and that it had sufficient liquidity to meet operating requirements.

The company was able to cancel the $1bn of bonds, sold last week by Merrill Lynch, JPMorgan, Banc of America Securities, Bear Stearns, Citigroup and CSFB, because investors had not paid out the money. Cablevision’s debt is rated in the junk category of B2 by Moody’s and B+ by S&P.

“While we are surprised with this turn of events, it is seemingly yet another Dolan blunder,” said Matthew Wilcox, analyst at KDP Advisors.

Cablevision shares closed down 3.5 per cent to $23.15 in New York on Monday.

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