Adelphia Communications Corp. has crafted a reorganization plan that values the No. 5 U.S. MSO at about $17 billion and essentially gives bondholders and unsecured creditors control of the company.
Adelphia filed the plan in bankruptcy court in New York on Feb. 25. It calls for paying off unsecured creditors — including some bondholders — with newly issued common stock or a mixture of new stock and interests in a litigation trust that would only pay them if Adelphia wins a series of lawsuits.
While much work remains — Adelphia needs court approval and must also solicit creditors — chairman and CEO William Schleyer said the MSO could emerge from bankruptcy by the end of the year, about six months later than originally proposed.
"We have always said we would be financially ready to emerge in mid-2004," Schleyer said on the conference call. "The complexity and uncertainty could push us beyond that date. Given everything we can anticipate, we should be out by the end of the year."
With 5.1 million subscribers, the plan values Adelphia at about $3,333 per subscriber, in line with industry benchmarks.
The cash component comes from an $8.8-billion exit loan facility from four banks: Credit Suisse First Boston, Deutsche Bank AG, JP Morgan Chase and Citigroup Inc.
The financing package includes a $5.5 billion senior credit facility and a $3.3 billion bridge loan.
Adelphia hasn't yet worked out the disbursement plan for the reorganization, so it's uncertain just what percentage of the newly issued stock bondholders and unsecured creditors would receive.
Bank lenders, mainly debtor-in-possession lenders, would receive full payment of debt in cash, most likely from the exit loan facility.
Other lenders would not receive their money until litigation against them is resolved. That litigation was filed last year by some of Adelphia's unsecured creditors and others who charged that the banks were involved in co-borrowing agreements between the Rigas family (which had controlled Adelphia until they resigned in 2002 amid a major accounting scandal), Adelphia and the banks themselves.
Bank of America, Bank of Montreal, The Bank of Nova Scotia, Citibank and Wachovia Bank objected to Adelphia's reorganization plan and urged the bankruptcy court to allow other parties to submit plans.
"The debtors have apparently decided that the only stakeholders they need to be accountable to in the plan process are their putative new equity holders, a subset of structurally subordinated creditors," the banks said in a joint statement.
When Adelphia filed for Chapter 11 bankruptcy protection in June 2002, it listed $6.82 billion in bank debt and $9.37 billion in bond obligations.
PLAN: ABSORB JVS
Adelphia also plans to absorb four joint venture partnerships.
They are: Century-TCI, a JV with Comcast Corp. with 720,000 subscribers in Los Angeles; Parnassos, another Comcast partnership with 434,000 subscribers in Pennsylvania, Ohio and Western New York; Tele-Media, three separate ventures with Tele-Media Corp. in which Adelphia owns a 75% to 82% interest with 145,000 subscribers in Connecticut, West Virginia, Virginia, Florida and Maryland; and Century/ML Cable Partners, a partnership with ML Media with 145,000 subscribers in Puerto Rico.
Adelphia estimates interests in those partnerships it doesn't own amount to about 300,000 subscribers.
Adelphia would acquire those interest by issuing preferred stock in the new company.
The litigation trust would hold funds received if Adelphia is successful in winning three separate lawsuits: one against former auditors Deloitte & Touche; one against the MSO's founding Rigas family; and one involving co-borrowing litigation against several financial institutions.
Current shareholders would receive a piece of that litigation trust as well.
But some analysts have speculated the MSO would have to receive more than $3 billion in lawsuit proceeds to pay them off.
Adelphia also isn't yet able to estimate just how much each class of creditor would receive under the plan, because it hasn't completed processing more than 17,000 claims.
"You'll notice in the plan, of the 17,000 claims filed against the company, the claims came back at $3.2 trillion," Adelphia chief financial officer Vanessa Wittman said on the analyst call.
"We have not yet completed the work to cull through those and assign them to the parent versus the subsidiaries. Those numbers will get filled in by the [final] disclosure statement."
EQUITY WIPED OUT?
The Rigas family would get nothing. And the same could hold true for current equity holders.
While that is usually the case in bankruptcies, Adelphia's equity shareholders committee — led by Citizens Communications chairman Leonard Tow — came out against the plan.
Tow's committee said the reorganization plan "demonstrates that Adelphia's management and board of directors continues to grossly undervalue the enterprise value of the company and have failed to fulfill their fiduciary obligations to maximize benefits for all constituencies."
The equity committee had filed its own plan in early February, valuing Adelphia at $22 billion and urging an outright sale.
Former Adelphia chairman John Rigas was surprised to hear of the reorganization plan, and was disappointed at its timing. Rigas, his sons former Adelphia chief financial officer Timothy and former executive vice president of operations Michael, and former vice president and assistant treasurer Michael Mulcahey were in Manhattan last week for jury selection in their upcoming federal fraud trial.
"What they are doing is deliberate — the timing and what is going on with us," John Rigas said. "Timing has a lot to do with it on their part. It's pretty obvious."
John Rigas also was disappointed that the reorganization plans leaves nothing for shareholders.
"I definitely feel there should be something for the shareholders — there's equity there," Rigas said in a brief interview outside the courtroom where jury selection is being conducted for the federal fraud trial of himself, his two sons former chief financial officer Timothy and former executive vice president of operations Michael and former vice president and assistant treasurer Michael Mulcahey.
"My sense is they never should have gone into bankruptcy to begin with," Rigas said.