Leverage Looms Large at Storer

William P. Whelan's appointment as president of Storer Communications Inc. represents a return to the old fold, but with a whole new set of challenges.

Whelan had served as executive vice president for operations at Storer until 1988. Just a month into his new job, he now faces a number of challenges, including refinancing several hundred million in debt in a tough lending market and halting a steady erosion of pay penetration in its systems.

With a background in finance, Whelan took charge at Storer after the departure of Michael S. Tallent, who is now senior vice president of accounting and administration for Comcast Cable Communications Inc.

"Storer is a pretty well run cable company, and I want to continue with that. I'm happy with the way things are," Whelan said, adding that no big changes are imminent.

Outsiders, however, say leverage is the big issue these days at Storer. The company's liabilities, including preferred stock obligations, exceed $3.5 billion, or $2,200 per subscriber. That's at a time when falling system values are shaving the company's equity.

But one analyst said the company is not as heavily leveraged as it might appear. "They are and they are not leveraged," said Ben Bendre, a high-yield bond analyst with New York-based Salomon Brothers who tracks Storer and about 25 other cable companies. "A lot of people don't understand the company."

That's not surprising. Storer parent SCI Holdings Inc. is built on zero-coupon bonds that require no immediate cash expenses, and its asset base is bolstered by a series of securities issued by its owners that put more than $170 million into the company.

Storer is owned jointly by Comcast Corp., Tele-Communications Inc. and Knight-Ridder Inc. Comcast owns 50 percent, TCI 42.5 percent and Knight-Ridder the balance of 7.5 percent.

At the time Storer was purchased from Kohlberg Kravis Roberts & Co. (KKR) in November 1988, the buyers put into Storer securities that pay the company about $102 million a year cash interest. In addition, the buyers kicked in additional securities with non-cash dividends that amount to about $70 million a year, Bendre explained.

The Miami-based company's long-term debt amounts to about $2.15...