Cable Operators

Adelphia Bondholders Feud

1/20/2006 7:00 PM Eastern

Adelphia Communications Corp. bondholders continue to squabble about their place in the queue for the proceeds from the pending sale of the cable operator, while the Denver-based company makes moves to erase about $3.5 billion in claims against it.

Adelphia, which last April announced its pending acquisition by Time Warner Inc. and Comcast Corp. for about $17.6 billion in cash and stock, asked the bankruptcy court on Jan. 17 to eliminate about $3.5 billion in claims, according to a filing with the Securities and Exchange Commission.

The latest move is part of an ongoing effort to remove about $8 billion in claims from its bankruptcy case.

A hearing is set for March 1 on the claims issue.

BONDHOLDERS IN COURT

Meanwhile, two classes of bondholders are scheduled to go before the court on Feb. 2 to air out their differences concerning who is the first to get paid once the sale to Time Warner and Comcast is completed. Last year, holders of about $4.9 billion of Adelphia holding company debt clashed with holders of $1.7 billion in bonds assigned to an Adelphia subsidiary — Arahova Communications — concerning which group was first in line to get paid.

At issue is a series of intercompany claims that have managed to muck up a complicated process even further.

The fight between the two classes of bondholders stems from Adelphia’s fourth plan of reorganization, issued on Nov. 21 and approved by the court on Nov. 23. It mapped out how the proceeds from Time Warner and Comcast would be doled out.

Arahova claims it should be paid ahead of the holding company bondholders. The holding company debtors claim their payout should be bumped up to $2 billion, with the difference weathered by the Arahova debt holders.

Adelphia bonds also have dropped considerably in the past year. Its most liquid bonds lost about 40% of their value in 2005 — dipping from above par (more than 100 cents on the dollar) to about 62 cents on the dollar.

The dispute threatens to prolong the bankruptcy court case — already entering its fourth year — and could even jeopardize the sale to Time Warner and Comcast. That deal has a drop dead date of June 30, 2006, and is contingent on closing the bankruptcy case.

If the deal does not close, Comcast and Time Warner would receive a $440 million break-up fee from Adelphia.

OTHER BUYER OUT THERE?

But according to one cable-industry executive with knowledge of all three companies, bondholders will have to think long and hard before they scuttle a deal.

“They [bondholders] may decide they want to stymie a deal, but they have to decide if there is anybody else who can come in and take this over,” the executive, who asked not to be named, said.

While there were several bidders for the Adelphia assets, Time Warner and Comcast were the leaders from the start. Other parties generally bid for pieces of Adelphia, not the entire company.

When Cablevision Systems Corp. lobbed in its last minute all-cash bid of $17.1 billion in April 2005, many believed that was a ploy by the MSO to force Time Warner and Comcast to pay a higher price.

September