Adelphia Resets Plan

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Adelphia Communications Corp., faced with a July 31 deadline for its planned sale and two groups of angry creditors, put forth a compromise last week that it hopes will speed up its bankruptcy process and pave the way for its acquisition by Time Warner Inc. and Comcast Corp.

Adelphia, which has been in bankruptcy court since 2002, last Wednesday filed an amendment to its fourth plan of reorganization, this time allocating more money to one group of creditors — Arahova Communications.

According to sources familiar with the matter, the Arahova creditors would receive $1.04 for every dollar, or about $1.8 billion of the $2.4 billion in principal and interest they’re owed.

The second class of bondholders — the ACC holding company — which control about $4.9 billion in holding company debt (or $7 billion, including interest) would get about $635 million, or between 14 cents and 43 cents on the dollar depending on what type of bonds they own.

The ACC bondholders would also receive whatever is left over in reserve accounts. Currently at about $3 billion, the bulk of the reserve money is earmarked for taxes and other operating expenses, so it is difficult to determine just how much money would be available for the bondholders. ACC also will split any proceeds from civil lawsuits against the operator’s former ruling family, the Rigases, former banks and former accounting firms with Adelphia.

The deal would reduce the price Time Warner and Comcast would pay by about $710 million, or about 4%. That reduction would come from the stock portion of the deal — originally $4.9 billion — which would drop to $4.25 billion if the plan is accepted. The cash portion of the deal, $12.7 billion, remains intact.

The compromise is just the latest in what has been a months-long clash between the bondholders. And the longer that battle continues, the bigger the danger that the deal with Time Warner and Comcast may be scuttled.

Time Warner and Comcast agreed to pay $17.6 billion in cash and stock for Adelphia’s 5 million subscribers in April 2005. But the deal has a July 31 drop-dead date, which would allow Time Warner and Comcast to walk away from the deal and require Adelphia to pay the two a $440 million break-up fee.

While it is likely that Time Warner and Comcast would extend that July 31 deadline if they believed a deal between the bondholders was moving forward, the companies won’t wait forever.

According to the latest reorganization plan, the bondholders could approve the plan and accept the settlement terms, or the money from the sale would go into escrow, the bankruptcy would be completed and the bondholders could work out a deal in the future.

There is a May 14 voting deadline for the amended plan, but executives familiar with the bankruptcy said that if the bondholders agree to the deal, a settlement could come before then.

Adelphia has avoided getting involved in creditor disputes in the past.

But because the groups have been unable to resolve their differences and because of the looming July 31 deadline, the company decided to move forward with a compromise proposal.

“This bankruptcy should have been and could have been settled seven months ago, eight months ago,” Adelphia chairman and CEO William Schleyer said in an interview. “And it should be settled now.”