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NEW YORK, Feb 12 (Reuters) - Charter Communications Inc CHTR.O said on Thursday it will restructure its debt under bankruptcy protection, wiping out shareholders, after it reached a deal with senior creditors.

The cable operator, controlled by Microsoft co-founder Paul Allen, said in a statement it would file for Chapter 11 on or before April 1 after it reached an agreement to reduce its debt by around $8 billion. It had debt of around $21 billion as of Sept. 30.

Various debt holders and bondholders will receive a mix of new notes, equity and cash, depending on their seniority. Shareholders will not receive anything for common stock, which will be canceled.

Under the agreement around $10 billion of bank debt will remain on Charter’s balance sheet untouched, while the $11 billion held by bondholders will be reduced to $3 billion, people familiar with the agreement said.

The bondholders will have most of their notes converted to new notes and common stock or warrants to buy common stock.

Some publicly traded Charter bonds soared after the news as investors bet the bonds might recover most of their value. For details see here [ID:nN12486440].

Chief Executive Neil Smit said in a statement the agreement covered “a significant portion” of bondholders.

Paul Allen will continue as an investor and retain the largest voting interest in Charter of around 35 percent, another person close to the deal said.

Allen’s various non-equity holdings in Charter, including debt and preferred were converted to equity under the new capital structure, these people said.

Analysts at Morgan Stanley said the prearranged plan helped avoid a "long and messy" bankruptcy proceeding that might have benefited competitors such as satellite TV operators DISH Network Corp DISH.O and DirecTV Group Inc DTV.O, or telephone companies such as AT&T Inc T.N and Verizon Communications Inc VZ.N, which also offer competing video services.

“Charter’s complex capital structure and the multitude of creditor groups could still derail the process, but it is possible that Charter could be restructured in as little as 3-6 months,” Morgan Stanley analyst Benjamin Swinburne said in a client note.

Charter’s new lower debt load of $13.5 billion will be around 5.5 times its 2009 average expected earnings, according to Reuters Estimates.

The largest cable operator Comcast Corp CMCSA.O has debt of around 2.3 times 2009 earnings and Time Warner Cable Inc TWC.N is around 3.3 times consensus earnings.

Charter’s equity value has plunged in recent years to as low as $30 million this week from around $5 billion in 2001.

After the restructuring announcement, Charter shares dropped even further, to around 3.5 cents, valuing the equity at some $15 million.

CASH ON HAND

The company, which has more than 5.5 million subscribers, said it would make an overdue interest payment of $74 million before a final deadline of Feb. 15.

Charter said that, as of Feb. 11, it had more than $800 million in cash on its balance sheet. The company said it believed its liquidity, combined with its cash from operating activities, would be sufficient to meet projected cash needs.

The company expects fourth quarter earnings before interest, tax, depreciation and amortization to grow 9.7 percent to $620 million. It said revenue is expected to grow 7 percent to $1.656 billion and it expects to record an impairment charge of $1.5 billion.

Capital expenditures would be about $264 million.

Charter also expects to lose around 75,100 basic video subscribers, but add around 22,300 net digital video subscribers during the fourth quarter.

The company will add 22,900 high-speed Internet customers and 75,200 phone subscribers for the period. (Reporting by Yinka Adegoke; Editing by Bernard Orr and Andre Grenon)