Chap. 11 looms for Adelphia

Jun 17, 2002  •  Post A Comment

A bankruptcy filing by Adelphia Communications that could come as early as Monday would not only begin to bring much-needed clarity to the company’s scandal-racked situation but also help begin restoring investor confidence in other battered cable stocks.
Cable operators, whose balance sheets generally were never stronger, have been scratching their heads over the new lows set by their stocks in the wake of the Adelphia fiasco.
Adelphia’s virtually new board of directors was scheduled to meet over the weekend and was expected to make a decision about filing for bankruptcy. At press time, the nation’s sixth-largest cable operator was negotiating with J.P. Morgan Chase & Co., Citigroup and Bank of America to secure a $1.5 billion bankruptcy loan to keep its businesses operating.
One of Adelphia’s subsidiaries, Adelphia Century Communications, filed for Chapter 11 bankruptcy protection June 10, in what was seen by many as the first step toward the same for Adelphia. But that slow, painful march toward bankruptcy has taken its toll on much healthier cable companies.
On Friday, Richard Bilotti, analyst at Morgan Stanley Dean Witter, responded to the broad, prolonged sell-off of cable stocks by saying, “We’re in the midst of a panic.”
`Downturn is unjustified’
However, with the cable industry generally seeing annual revenue growth rise from 10 percent to 13 percent, capital expenditures dramatically declining and cash flow soaring, he told clients Friday that “cable is a growth industry.”
“This downturn is unjustified,” Mr. Bilotti said. “This sector has 40 percent upside in the next six to 12 months.”
The safest investor bets are big names with low debt, such as Cox Communications, even though big names with high leverage such as AOL Time Warner and Comcast Corp. may offer the biggest upside, he said.
Analysts generally say they do not believe any of the other cable operators, many of which also are family-owned and -operated, have accounting, reporting or bankruptcy issues.
One beleaguered top cable executive last week said all his company could do was “hunker down and make our case as best we can. We’ve all been tarred with the same brush. But as long as we do what we do well, the investors will return,” the cable executive said.
Companies such as Cablevision Systems are moving to reduce debt to ease investor fears. Cablevision is considering reducing its capital expenditures and noncable investments, selling some noncable assets such as its direct broadcast satellite business and its PCS licenses.
In a move to abate investor fears, Cablevision management recently said it would not use stock to bridge a $1 billion funding gap. The company also took the unusual step of releasing a written statement clarifying its accounting practices and policies.
Heavily leveraged Charter Communications stock hit a new low of just over $4 a share, way off its 52-week high of $24.45. AT&T, whose Broadband unit is being acquired by Comcast Corp., fell to a new low of $9.50 a share. Comcast officials, speaking at investor conferences last week, said their deal to acquire AT&T Broadband remains on track, though its value has dropped from about $72 billion to $52 billion. The stock-and-cash offer has no collar around the stock, which would have required Comcast to compensate AT&T investors for their lost value.
Adelphia’s delisted stock fell to 10 cents per share, while Adelphia bonds traded at 1 cent to 2 cents on the dollar, spelling out imminent bankruptcy, according to analysts.
AOL Time Warner continued to sink to a new low of just over $15 a share, and even Cablevision Systems fell to $14 a share, near its 52-week low.
Top cable executives, speaking at various investors conferences last week, said they are not rushing to bid but could eventually seek to buy some of Adelphia’s cable systems. What appears to be Adelphia’s imminent Chapter 11 bankruptcy filing has temporarily halted asset-sales negotiations, which flourished several weeks ago until Charter Communications and Adelphia broke off talks over price. Charter was only willing to pay $2,700 per subscriber, nearly $1,000 less than Adelphia is seeking, sources said.
Adelphia is hoping to sell systems serving 2.75 million subscribers in California, Florida, Virginia, South Carolina, North Carolina and Florida. The company is the focus of probes being conducted by the Securities and Exchange Commission and two grand juries and is the target of numerous shareholder suits.
The Coudersport, Pa.-based cable company has missed $45 million in interest and dividend payments. If the company missed making those payments by Saturday, it is officially in default.
A bankruptcy court will attempt to figure out how much of the existing debt is cable-system-related or due to the apparent improper business dealings of its founding Rigas family, which racked up nearly $3 billion in company-backed loans to invest in, buy or maintain other businesses. However, it is likely to be a while before any of the secured or unsecured creditors see any money, sources said.