Bankruptcies are never pretty, but the one originally anticipated for Charter Communications Inc. was too ugly to contemplate. Never mind that the cable company was about to implode under a debt load of $22 billion. Making matters worse was the debt's having been issued by seven corporate entities in 28 separate tranches. That's a lot of stakeholders, each with a story to tell and an argument to make, for even a bankruptcy judge to hear.

Their coming to an agreement about a financial restructuring initially seemed so far-fetched that the high-yield team at Oppenheimer & Co. envisioned a scenario straight out of Bill Murray's "Groundhog Day." As it predicted two months ago in a research update about Charter's inevitable visit to Chapter 11: "It's gonna be cold, it's gonna be gray, and it's gonna last you for the rest of your life."

Yet when Charter finally filed on March 27, through a prearranged plan that seeks to lighten its balance sheet by $8 billion, the St. Louis company already had agreements with a majority of parties holding two key tranches of senior secured notes. These noteholders, moreover, had committed themselves to investing an additional $3 billion in Charter, including up to $2 billion in equity. Also unusual was their acceptance -- actually, their insistence -- that Charter's controlling shareholder, Microsoft Corp. co-founder Paul Allen, continue to control the company. This last measure, especially, so counters most bankruptcy proceedings that a distressed-debt specialist remarks, "The guy who normally gets thrown out first is, in this case, making out like a bandit."

That's not technically accurate. The $7.4 billion Allen has personally invested in Charter since his first cable acquisition in 1998 dwarfs the $305 million, plus up to 7% of the post-bankruptcy equity, that the prearranged plan proposes to return to him. But it is accurate in that Charter and a majority of its creditors have aligned themselves to a degree that the "extended bickerfest" Oppenheimer predicted two months ago is no longer a fait accompli.

The company's bankruptcy stay may not even be that extended. President and CEO Neil Smit is already projecting "an expeditious restructuring," whereas the operating side of the business generates enough cash to allow Charter to forgo debtor-in-possession financing.

A source conversant with the sudden reversal in Charter's outlook claims "all the elements came together in a harmonic convergence." He admits, though, that the first element of this convergence was not a divine awakening so much as an unexpected appreciation for a "change of control" provision embedded in covenants governing Charter's credit facilities. Small print has seldom had such big consequences.

For Charter, the change-of-control insight did more than embolden its management and controlling shareholder to embrace bankruptcy as a means to restore financial health and, by doing so, refocus investor attention on operational improvements over the past half-decade. It also brought creditors together in numbers that suggest the company's carefully orchestrated entry into Chapter 11 will be followed by a similarly sleek exit. And, finally, it set the stage for private equity ownership of the country's fourth-largest cable operator -- with sales of $6.5 billion, an enterprise value of $21 billion and a customer base of 5.5 million -- at a time traditional lenders lack either the means or the stomach for leveraged buyouts anywhere near Charter's size.

The actual covenant inspiring all this, according to a recent 10-K, specifies that a default of Charter's credit facilities occurs when Allen or entities under his control cease "to have the power, directly or indirectly, to vote at least 35% of the [company's] ordinary voting power."

While this may not seem all that consequential, consider that Charter's credit facilities stand at $8.6 billion. Then consider that in 2008 these facilities yielded a not-so-rich 5.5%. Repricing them in this market would give the banks an extra 500 to 1,000 basis points, provided they were willing to reprice at all.

Even a successful repricing would be disturbing, except to bankers benefiting from it. In Charter's case, a low-end increase would boost interest payments on just its credit facilities by more than $400 million a year. And for a company so worried about a possible restructuring that it had specialists studying its balance sheet and analyzing debt alternatives last fall, an increase of that magnitude would be fatal.

"That's when it jumped out at them," says a source close to the restructuring team. "They suddenly realized that the change-of-control provision was their single biggest asset." It was big as a deterrent, in other words, big in the havoc its triggering would wreak -- almost as big in a corporate sense as weapons of mass destruction are in the geopolitical sphere. "If the bank debt were to get repriced," the source explains, "it would wipe out everybody below it."

That meant a change of control would vaporize Charter's six other levels of debt, whose $13.1 billion total included two relatively senior ones: CCH I, with $4.0 billion, and more senior CCH II, with $2.5 billion.

Armed with its WMD, Charter chose the noteholders of CCH I and CCH II to initiate discussions leading, ultimately, to its prearranged bankruptcy. And its representatives made it clear from the get-go that the change-of-control provision was theirs to use and everybody else's to lose. "It gave them incredible leverage in all their conversations," says a source at the negotiating table. "They established early on that Paul [Allen] was not going to be treated as equity players are normally treated in these situations."

Sure, his voting power stood to fall from the 91% the most recent proxy records for Allen, who in addition to 7.2% of Charter's outstanding Class A common stock owns 100% of the company's supervoting Class B shares. But bondholders hoping for a return at all now had reason to be as vested as Allen in keeping his vote above 35%.

That's not to say the two levels of negotiating noteholders were equally responsive to Charter's restructuring proposals. CCH I, being junior to CCH II, knew it had increased exposure to a bankruptcy or a change of control, particularly after a faction of CCH II noteholders started articulating an aversion to any restructuring unless, a source reports, "they were paid in full." And while other CCH II noteholders were somewhat more relaxed about receiving paid-in-full guarantees, this second CCH II faction tended to be noteholders at the CCH I level, too. Those holding this precise combination of notes -- CCH I and CCH II -- would eventually unite as a so-called crossover group and play a role second only to Charter's change-of-control provision in driving the restructuring discussions.

A crossover group isn't unique to Charter but fairly common in debt-heavy companies such as the cabler. That is, in times of easy credit, distressed-debt players buy securities at more junior levels in quest of higher yields. But when debt markets sour, as they did two years ago, the crossover begins with less-risky purchases a notch or two up the credit ladder. And when markets get really bad, as they did last year, even distressed buyers go after senior levels so they can at least have a voice in negotiations over what happens to their multileveled investments.

"That's just the way they are," volunteers a source who bets that most of Charter's crossover group originally bought in at the level known as CCH I Holdings LLC.

This level, one rung below CCH I and two rungs below CCH II, basically satisfied members of the yet-to-cohere crossover group until credit markets tightened.

"Then they went, 'Shoot! Guess we had better buy in at CCH I,' " the source says. "So they pile into CCH I, only to have the market crank down again. That's what took some of them to CCH II."

Although the numbers are fluid, Charter's crossover group now owns about 73% of outstanding CCH I notes and 52% of the more senior CCH II notes. That means it has nearly $3 billion invested in CCH I, compared with only $1.3 billion invested in CCH II. So it's pretty clear where the crossover group's loyalties lie.

The protection of its junior CCH I investment nonetheless requires that it placate, somehow, the 48% of senior CCH II noteholders indifferent to the plight of CCH I.

Negotiations preceding bankruptcy can be as fractious as those leading to divorce court, only magnified by the number of credit classes trying to get as much return as they can. Charter's crossover group, once its members found one another, may have caught a break for being dominated by only a few players: Apollo Management Holdings LP, Crestview Partners LP, Fidelity Management & Research Co., Franklin Advisers Inc. and Oaktree Capital Management LP.

Compare this group with Charter's total creditor group, with hundreds of members, and it's obvious which is most conducive to rational and productive discourse.

It also hasn't hurt that among the crossover group's lead negotiators, several already knew Allen or Lance Conn, who is both a board member of Charter and the president of Allen investment arm Vulcan Capital. Crestview partner Jeff Marcus sold Allen his first cable company, the namesake Marcus Cable Co., for nearly $4 billion more than a decade ago. Apollo partner Eric Zinterhofer has been overseeing his private equity firm's debt holdings in Charter since their initial public reporting in 2004. And UBS joint global head of media and communications of investment banking Aryeh Bourkoff, who began covering Charter as an analyst before Allen bought it, has been its primary banker since switching UBS departments in 2007. Vulcan's Conn and Charter's Smit have an established rapport as well. Both spent years at America Online Inc. before Conn jumped to Vulcan in 2004 and recruited Smit to run Charter in 2005. "They did some remarkable cat herding," says an observer, impressed with the ability of these negotiators to keep even the most independent of group members in line.

The negotiators' real coup, however, was to recognize the crossover group had good reason and ample resources to put up enough capital to take out recalcitrant noteholders at the CCH II level. Paying off these senior noteholders at par, they realized, would do more than send the nonstarters of negotiators packing. It would also free the crossover group to push down the restructuring's so-called fulcrum security -- the debt instrument most likely to convert to equity ownership -- to the CCH I level. (Multiple sources report that had Charter pursued a standard bankruptcy, the fulcrum would have been at the CCH II level.) "They sensed that, if they couldn't pull this off, their CCH I investments would be wiped out," recalls a source familiar with crossover group restructuring concerns. "And so they opened up a discussion about overpaying early on with a view toward capturing the maximum upside later."

Another restructuring participant calls it "serendipitous" that Charter's crossover group comprises "an odd mix of mutual funds, private equity firms and distressed-debt types." That way, should notes at the CCH I and CCH II levels ever convert to a post-bankruptcy combination of debt and equity, each investor type would be able to "horse-trade" its allocation of assets to satisfy the distinct needs of its portfolio. "Look for Apollo and Crestview to wind up with as much equity as they can," this source says.

Even an insider describes Charter's debt structure as a "real layer cake," with each layer evoking one or another cable acquisition that Allen made in pursuit of his "wired world" vision. The Microsoft billionaire made 20 such acquisitions in less than four years, playing a frenetic game of catch-up after fearing he might be late in installing cable at the "head end" of his digitally driven domestic dream. And so the debt layers stacked up, causing Charter's credit cake to teeter even before the spending stopped in 2001.

Although rumors of its demise have surfaced periodically since then, Charter played the easy-credit years as well or better than any company defined, largely, by its debt. Between 2004 and 2007, it recycled more than $14 billion in outstanding obligations, extending the maturity on each an average of two years. This led to a period when it looked to close observers that Charter might be able to "buy a long enough runway," as one source says, to satisfy financial commitments that most everyone else believed would keep the company from ever taking flight. Others, meanwhile, were satisfied with their perception of Charter as the epitome of "good company-bad balance sheet."

But on Jan. 15, more than a year into the credit crunch, any lingering optimism came to a halt. That's when Charter announced missing interest payments on two tranches of notes. And though the missing amounts totaled less than $75 million -- easily met by the $900 million in cash or its equivalents the company had on hand -- the 30-day grace period instigated by the default triggered a death watch among Charter's equity investors. It also kicked the crossover group into high gear, leaving one its members with the memory, "We worked our butts off those 30 days."

On Feb. 13, two days before its grace period expired, Charter not only announced that it would make good on its missed interest payments, but reported an agreement in principle had been reached with "an ad hoc committee of certain of the company's debt holders" (the crossover group) to reduce debt by some $8 billion. It also provided broad outlines of a plan to pay off those CCH II noteholders unwilling to advance the crossover group's goal of preserving at least some of CCH I's value. Details would be forthcoming, it promised, in the Chapter 11 petitions.

The actual petitions, filed in U.S. Bankruptcy Court for the Southern District of New York, deliver on Charter's promise by revealing how extended talks between the company and the crossover group achieved objectives that appear customized for each participant.

For example, there are eight members of the group committing $1.2 billion necessary to refinance the debt now held by CCH II noteholders seeking to exit; four members are putting in $267 million in new debt; and six members are backstopping a Charter equity rights offering with $1.6 billion, which means that they will pick up any rights distributed on a pro-rata basis that other members of the group would prefer to leave on the table.

The $8 billion debt removal, meanwhile, is to be the sacrifice of junior creditors, who in exchange will be granted out-of-the-money stock warrants. But not even those hard decisions caused "a lot of screaming," says a participant in the discussions, and certainly "no chair throwing." The sacrifice is both welcome and necessary in that it would take Charter's debt leverage to less than 6 times cash flow from a now-unwieldy 9 times. What's more, by reducing annual interest payments by $830 million a year, the lighter load would raise Charter's Ebitda-to-interest coverage to an industry-normal 2.1 times, from a now-untenable 1.2 times. These metrics may well keep improving, given that the full-year results Charter announced last month included a 10.3% pro forma gain in Ebitda on a 8.5% pro forma gain in revenue.

Of course, not everyone is as satisfied with the prearranged bankruptcy plan as the crossover group. Charter's banks are miffed because, as one source put it, "They weren't invited to the table to ask for more." It's a formidable group to ignore, too, fronted by J.P. Morgan Chase Bank NA as administrative agent, with membership extending to Bank of America NA, Citicorp North America Inc., Deutsche Bank Securities Inc., General Electric Capital Corp. and Credit Suisse Securities (USA) LLC. In its role as administrative agent, J.P. Morgan first cried foul on Feb. 5, denying a request from Charter to take down a revolving loan on grounds that, as a regulatory filing declares, "one or more events of default" had already occurred.

Although Charter rebutted the assertion, J.P. Morgan held its ground, setting the stage for the complaint it submitted to bankruptcy court last week. Charter had anticipated the complaint in its first batch of petitions, which included a debtors' memorandum on reinstatement. The memorandum seeks to keep existing terms on a total of $11.8 billion in senior debt, including Charter's $8.6 billion in credit facilities, central to which is the change-of-control provision that has informed all of Charter's restructuring considerations.

Whether Charter's prearranged plan can clear this last hurdle remains to be seen. Many expect it will, thus permitting a victory that transcends but doesn't diminish whatever clarifications the banks' complaint brings to the subject of post-bankruptcy debt reinstatement.

This bigger victory, an optimistic restructuring participant contends, should confer "poster child" status on Charter and its crossover group for figuring out how to complete "a turnkey LBO in a market that can't raise credit." And if others were to follow their lead, Charter's restructuring might even give the dark metaphor of "Groundhog Day" so applicable to recent bankruptcy proceedings a sunny, shadow-free counterpart.