Adelphia filing indicates a long road to recovery

Jun 3, 2002  •  Post A Comment

Even if Adelphia Communications files for bankruptcy that will not put the cable operator out of its misery any time soon.
According to a Securities and Exchange Commission filing the company made last week, attorneys for the company, shareholders, creditors and others will be unraveling the complex maze of deals, investments and accounting for some time to come. The filing marked the first public accounting by the company since members of its founding Rigas family first revealed their secret investments using Adelphia stock as collateral.
The SEC filing provides an intriguing preliminary glimpse at the complex partnerships, business and investments made by the Rigas family. A special committee is investigating to what extent Adelphia cash and stock were allegedly used, with or without board approval, to support these interests.
Following the detailed SEC filing, Adelphia stock, which already had lost more than 80 percent of its value in recent weeks, plunged to $1 a share, at which time the NASDAQ announced it would delist the stock June 3, citing “public interest concerns” and the company’s failure to file an annual 2001 report and other financial information.
Adelphia confirmed Friday that the latter also violated loan covenants, which resulted in the company’s officially being in default.
The delisting will likely push Adelphia into Chapter 11 bankruptcy, since it allows bondholders to insist the company convert $1.4 billion in debt to cash and would create a cash crunch. Adelphia has a major payment to bondholders due by mid June.

Adelphia’s board was scheduled to meet Saturday, June 1, to discuss a bankruptcy filing and other potential solutions.
Still, interim CEO Erland Kailbourne and company officials Friday were racing to negotiate the sale of its Los Angeles cable systems to Paul Allen’s Charter Communications for what sources said was “much less” than the $4,000 per subscriber Adelphia has sought. Leonard Tow and several other dissident board members have rigorously fought against such a fire sale of assets to pay down debt and make already-missed interest payments on bank loans.
“Such a sale would strip the company of its ability to conduct an orderly and profitable disposition of the remainder of the company’s assets when and if it is necessary” to avoid “an unfair impact on creditors,” Mr. Tow wrote in a letter to Mr. Kailbourne, who asked for Mr. Tow to provide “concrete alternatives.” Adelphia said it will not announce the sale of any assets before Saturday’s board meeting. The letters were included in an SEC filing late last week.
According to heated correspondence exchanged among company directors and acting executives, Mr. Tow, a longtime Adelphia shareholder who controls a 13 percent stake in the company, is seeking to be named chairman even though he was only appointed to the board last week.
The Rigas family members, including former founding Chairman John Rigas, recently relinquished their posts and voting status, and turned over more than $1 billion in personal assets to help reduce Adelphia’s debt.
Adelphia has been negotiating the sale of 450,000 subscribers in Los Angeles and 550,000 subscribers in Georgia, South Carolina and North Carolina for as much as $4 billion. Cox Communications and Time Warner Cable also have expressed interest in the systems.
Last week, Adelphia’s lenders for a second time extended the deadline for those payments and $1 billion in additional funds to keep the company solvent. The company has missed $44.5 million in interest payments on $7 billion in bank loans.
Adelphia continues to be the subject of grand jury probes in New York and Pennsylvania, and SEC investigations. The company has not yet filed its 2001 annual report due to its accounting discrepancies. Adelphia’s longtime auditor, Deloitte & Touche, has suspended its internal audit over accounting and financial reporting discrepancies and also is under investigation.