Another Corporate Belly Flop

Adelphia Communications and more than 200 subsidiaries filed for Chapter 11 bankruptcy protection Tuesday night in U.S. Bankruptcy Court in New York, a week after the company missed $96 million in bond interest and preferred stock dividend payments.

Adelphia Communications' long-awaited bankruptcy filing is being greeted by analysts as a chance for the nation's sixth largest cable television company to keep operating while it tries to unsnarl its finances and get mounting debt under control.

Erland E. Kailbourne, chairman and interim chief executive, said the filing would let Adelphia hold onto assets and reorganize while continuing to serve customers in more than 3,500 communities.

"Entering into these proceedings will enable us to fully evaluate our enterprise without the immediate pressure to sell valuable assets that may well benefit the company in the future," he said.

Kailbourne also said employees and vendors will continue to be paid, subject to court approval.

Joe Galzerano, high-yield telecommunications analyst for CIBC World Markets, said the company still may be able to avoid being drastically downsized or broken up.

"If you remove all that debt they've got plenty of cash flow," he said. "There's probably no need to start liquidating everything."
An immediate reorganization challenge is to complete an accounting for the debt and for subscriber and cash flow numbers the company admitted overstating. "The first thing is to get their financials in order," said Galzerano.

Adelphia's finances have been in a downward spiral since it revealed in March it could be liable for billions of dollars in off-the-books borrowing by the family of founder John J. Rigas, with much of the money used to buy now-devalued Adelphia stock. Rigas and his three sons surrendered control in May, stepping down from executive positions and seats on the board.

Bankruptcy attorney Ivan Kallick, with the firm of Manatt, Phelps & Phillips in Los Angeles, predicts little immediate change at Adelphia.

"At the 60- to 90-day mark we will get a better sense of whether they become a downsized operation that continues on, or sell off their assets and merely become a liquidating trust for their creditors," Kallick said.

The filing followed vain attempts to sell assets or lure investors to ease a cash crunch as the Securities and Exchange Commission and two federal grand juries investigated the debts. At the same time, the company announced that it was investigating the Rigas family's use of company cash and assets including jet airplanes, condominiums and apartments.

Adelphia said the company had co-mingled its funds with cash from Rigas family ventures and allowed the family to repay some debts with company cash - a process that inflated the company's revenue figures.

CBS MarketWatch reports there were also disclosures of overstated financial and subscriber figures, as well as a number of questionable deals outside the cable industry.

Kallick said the company, which has more than 5.7 million subscribers in 32 states and Puerto Rico, would be aided by its tremendous cash flow.

"Subscribers are out there paying $40 to $50 a month for services, and that cash flow and the exclusivity that the franchise agreements bring them in some locations is very valuable," he said.

The company said it reached an agreement for a $1.5 billion loan, arranged by J.P. Morgan Chase Bank and Citigroup USA Inc. and spread among a large number of banks.

Kailbourne said the financing would allow Adelphia to expand and upgrade systems.

The company had faced growing complaints of halted cable installations, unavailable high-speed Internet service and slow telephone help. Communities including Mecklenburg County, surrounding Charlotte, N.C., retained a Washington law firm to protect their franchises. And the Los Angeles city attorney threatened last week to revoke five area franchises, citing customer service problems.

Adelphia's troubles erupted as similar allegations of off-the-books deals and questionable accounting are under the microscope at companies including Enron and WorldCom. Adelphia reported to the SEC in late May that it appeared the company had guaranteed $3.1 billion in loans to the Rigas family.

Adelphia divulged that the Rigases for years had almost unfettered access to company coffers, using company cash or assets to help it buy and run the Buffalo Sabres hockey team, expand the family's own personal cable company holdings, acquire timberland and invest in a golf course near the company headquarters in Coudersport in rural northern Pennsylvania. Many of the deals were never approved by Adelphia's board.

Adelphia said the company had co-mingled its funds with cash from Rigas family ventures and allowed the family to repay some debts with company cash - a process that inflated the company's revenue figures.

Also, according to the SEC filings, Rigas's daughter, Ellen Rigas Venetis, and her husband, Peter, were given two rent-free apartments in New York City, and the family traveled free on company-owned jets.

According to the company, Adelphia loaned $3.7 million to set up two film companies and help Ellen Rigas Venetis produce the film "Songcatcher." And an interior design company owned by his Rigas' wife, Doris, was given a $371,000 contract to install $12.4 million worth of furniture, also bought from a Rigas family business, in Adelphia office buildings.

Adelphia said it was also looking into whether company funds were used to build and maintain condominiums for the family in Beaver Creek, Colo., and Cancun, Mexico, and whether a $700,000 golf club membership was for business or personal use.

Adelphia's stock was delisted June 3 by the Nasdaq Stock Market for failure to file financial reports, and the company fired its accounting firm, Deloitte & Touche, naming PricewaterhouseCoopers to replace it. Adelphia stock, at $20.39 a share before the company first divulged the off-the-books debt in March, lost virtually all its value, priced at 14 cents in over-the-counter trading Tuesday.

Rigas was operating a small Coudersport movie theater in 1952 when a friend talked him into buying a franchise that delivered broadcast television signals, captured on a large antennae, via cable to rural subscribers. Rigas and his brother, Gus, gradually built the business, naming it "Adelphia," Greek for "brothers." John Rigas bought out Gus Rigas' interest in 1983.