Last spring, when franchise-fee checks from Adelphia Communications Corp. bounced, city officials first became alarmed.
Now, those same officials are angry, as the Coudersport, Pa.-based MSO has sent letters notifying its franchisors that it won't pay some public, educational and government access fee payments that date back to the beginning of 2002.
In letters that first arrived in localities' mailboxes during the week of Sept. 17, Adelphia said its Chapter 11 bankrupcty status precludes it from paying such contractually obligated outlays as PEG matching funds or capital support. The company filed for bankruptcy in June, on the heels of a financial scandal that led to the indictment of its top officers.
The bankruptcy's automatic stay prohibits any creditors from suing Adelphia or seizing property to make good on the debt, the letters advised.
Municipal attorneys said they are still examining their options in light of Adelphia's action. Some officials said they are confused as to why the operator would apply to the bankruptcy court to fund one business expense (franchise-fee payments, including make-goods for checks that bounced), yet claim it is unable to pay for another.
In some franchises, PEG funds are delivered to a nonprofit corporation under a side agreement with a separate contract. But in most situations, community-channel obligations are part of the overall franchise pact.
Municipal attorneys said they're drafting notices to cure and may find Adelphia in material breach of some of its franchises if it refuses to pay PEG fees.
Local officials will surely point to the PEG shortfall in their effort to persuade the bankruptcy judge that cities should be recognized as unsecured creditors in the Adelphia proceeding. Carolyn Schwartz, a trustee assigned to the case by the U.S. Department of Justice, has already rejected that plea.
In a Sept. 12 letter, federal officials told local regulators that cities don't have standing under the bankruptcy law because they are entities, and not persons. Only governmental entities that act as receivers for individuals — or are guarantors or beneficial owners of pension plans — escape that governmental exclusion.
And cities have no claims against the MSO because two of the first orders the bankruptcy court approved authorized Adelphia to pay certain pre-petition claims, an attorney for the trustee wrote.
The existing unsecured creditors' committee represents cities. A separate committee for local governments "is not the appropriate method to achieve your objectives," read the letter to municipal attorney Matt Leibowitz
Lawyers will try again on Oct. 9 to convince the bankruptcy court to give local governments a voice in the proceedings.