New York -- Former Adelphia Communications Corp. director Dennis Coyle told federal prosecutors Monday that the board was in the dark regarding what assets backed up nearly $2.3 billion in loans to the Rigas family, and it only learned about the magnitude of the debt about one month before it was revealed to the public.
Coyle -- testifying in the federal fraud trial of former Adelphia chairman John Rigas; his sons, former chief financial officer Timothy and former executive vice president of operations Michael; and former assistant treasurer Michael Mulcahey -- said the board had known of the Rigas co-borrowing agreements in the past, but it had not been privy to how much the family had actually been borrowing.
But at a company board meeting in Cancun, Mexico, Feb. 28, 2002, Coyle said Adelphia VP of finance Jim Brown told board member Erland Kailbourne that the amount the family had borrowed was about $2.28 billion.
"That was way too large for anything they could have borrowed based on their [cash flow]," Coyle said in court.
On March 27 of that same year, the co-borrowing agreements were disclosed during a conference call with analysts, which set the stage for the MSO’s downfall. Three months later, Adelphia filed for bankruptcy protection.
In an April board meeting to look further into the co-borrowing agreements, Coyle was disturbed to find that collateral for the co-borrowings was heavily skewed toward Adelphia assets. He said Adelphia collateral was about 20 times that supplied by the Rigas entities for the loans.
At that meeting, Coyle and the rest of the board discovered for the first time that leverage ratios (cash flow as a percentage of revenue) for the loans -- at most required to be about 6.5 times cash flow -- were nearly five times that measurement on the Rigas-partnership side.
For example, Coyle said, in one loan agreement -- called CCH -- the Rigas entities borrowed $1.2 billion that was backed up by just 125,880 cable subscribers with annual cash flow of $8.4 million, making for a leverage ratio of 34.8 times.
Coyle said that with that much leverage and that little cash flow, the Rigas entities could not make their quarterly and monthly interest payments on the debt.
"This was an unmitigated disaster," he added.
With the Rigas entities unable to pay, the onus was placed on Adelphia to pay off the debt, Coyle said.