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Harsh remedies loom for Adelphia

May 20, 2002  •  Post A Comment

As the news about Adelphia Communications appears to worsen by the day, industry investors and analysts are concerned the company will collapse into bankruptcy. But those same experts do not believe the issues contributing to Adelphia’s demise are widespread in the cable industry.
Standard & Poor’s said that because investigations by the company and the Securities and Exchange Commission will take time, “It is increasingly doubtful that the company can avoid at least a technical default … liquidity may be jeopardized by these developments.”
Niraj Gupta of Salomon Smith Barney warned that having its stock delisted by the NASDAQ “will trigger puts on certain of the company’s convertible securities,” creating a potential cash crunch. However, such observers said Adelphia’s problems, however dire, are unique. Still, all of the already beleaguered cable stocks have been further depressed in recent weeks by the Adelphia scandal, since many also are controlled by their founding families.
Trading of Adelphia stock, which last closed at $5.70 a share, was halted May 15 when the NASDAQ asked for more details about the company’s announced investigation of issues surrounding the delayed preparation of its annual report and a suspended internal audit. Before that, shares had dropped to below $4 in heavy trading and had lost 82 percent of their value since the company disclosed $2.3 billion in off-balance-sheet loans to partnerships controlled by the Rigas family. There was speculation that some of those funds allegedly were used to finance the construction of at least one golf course. The Rigas family originally said it used some of those borrowed funds to acquire Adelphia shares.
It’s difficult to know just how much direr the situation will get at Adelphia.
On May 16, Timothy Rigas resigned as chief financial officer of Adelphia. A day earlier, Mr. Rigas’ father-founding Chairman and CEO John Rigas-resigned, citing the need for “fresh, independent leadership.” He was succeeded by Erland Kailbourne, former CEO of Fleet National Bank’s New York region and an independent director at Adelphia since 1999 and chairman of its audit committee.
On the same day, the company suspended an audit by its long-time auditor Deloitte & Touche, saying it had launched its own internal investigation. The SEC earlier this month launched a formal investigation of the company.
Coudersport, Pa.-based Adelphia to date has missed nearly $45 million in interest and dividend payments. No decision has been made on whether two other Rigas family members-Michael Rigas, chief operating officer, and James Rigas, executive VP-will remain on the Adelphia board.
The company has hired high-powered attorney David Boies, who recently represented Microsoft Corp. in its antitrust case against the U.S. government.
Adelphia, the nation’s sixth-largest cable operator has placed systems in Los Angeles and elsewhere on the sales block to pay some of its $14.7 billion debt. However, those assets cannot be sold without audited financial numbers published for the entire company for 2001 in an annual report, which still has not been filed with the SEC.
Moody’s Investor Service on May 15 lowered its rating of Adelphia’s debt to low “junk” status, impacting $19 billion of securities, warning that bankruptcy is “unavoidable” for the company. Although Adelphia needs to recapitalize immediately, that was not imminent at press time.
The company also faces a new challenge from Leonard Tow, who owns 12 percent of the company and is demanding that he and two others be appointed to Adelphia’s board.#