Rigases Poised to Pony Up for Stock

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Adelphia Communications Corp.'s ruling Rigas family looks like its getting ready to pay off an $813 million commitment to buy the MSO's stock and notes three months ahead of a deadline, in a bid to reassure shareholders worried that the family would have to sell some stock to meet that obligation, sources said last week.

That move of reassurance may already have helped Adelphia's stock, which fell hard in recent weeks but ticked up nicely last Wednesday. It gave back some of those gains on Thursday, closing at $22.74.

Highland 2000 — the investment vehicle of Adelphia chairman John Rigas and members of his family — faces an Oct. 22 deadline to buy $250 million in stock at $42.96 per share and $163 million in notes at $43.96 each as part of an earlier offering, according to securities filings.

A second payment of $400 million is due Jan. 22 for convertible notes at $55.49 per share — more than double Adelphia's current stock price.

The stock-and-note purchases are part of two financing deals Adelphia cut last January and April to raise money to pay down debt. According to one debt analyst, who asked not to be named, Highland agreed to the purchases to show investors its commitment to the company and to improving shareholder value.

Even at the time of the offerings, the prices represented about a 24 percent premium on Adelphia shares.

The problem for the Rigas family is that Adelphia's stock has fallen since then. At current prices, the stock buys would be at an 80 percent premium and the notes would be purchased at a 100 percent premium.

Instead of wriggling out of the deal, the Rigases appear to be preparing to pay off the entire commitment in one fell swoop, in an effort to show shareholders that the commitment was never in doubt.

Adelphia stock has been hammered in the past few weeks, partly as investors wondered whether the Rigases could meet the Oct. 22 deadline without selling off a huge amount of their Adelphia holdings, analysts say.

The Coudersport, Pa-based MSO hit a new 52-week low on Oct. 2 — $18.56 — before rallying slightly to close at $19.69 per share on that day.

Adelphia rebounded on Oct. 3, to $23.87, which some analysts attributed to investors catching wind of the company's ability to meet the obligation.

In the past month, Adelphia stock has lost about 30 percent of its value, from $32.39 per share to $22.74. Overall, MSO stocks dropped about 10 percent in the same period.

Sources close to the company said Adelphia management has been telling some analysts and investors that the situation will be handled without diluting their holdings.

"They [the Rigases] are not going to do something to put additional sell pressure on the stock," one source close to Adelphia said.

Adelphia officials referred questions on Highland to MSO executive vice president and chief financial officer Tim Rigas. He did not return phone calls last week and was said to be traveling.

'BASS' ANALOGY

The analogy that keeps coming up is what happened with the Bass family, which had to sell 135 million shares of The Walt Disney Co. stock last month to cover margin calls on other investments.

According to securities filings, the Bass Management Trust — which includes Texas oil billionaire brothers Sid R. and Lee Marshall Bass and other members of the Bass family — reduced its Disney holdings by about 135 million shares, or about 6.4 percent of Disney's outstanding stock. The trust retained about 3 percent of Disney stock. Disney's share price fell about 8 percent, or $1.52, the day the Bass Trust sold, closing at $16.98 on Sept. 18.

According to another source close to the company, Adelphia management has been inundated with calls from skittish investors ever since the Bass family's Disney sale.

"They [Adelphia] have been telling investors that the fears are unfounded," said one source close to the company. "They've been trying to reiterate that they [Highland] have had 270 days to raise the money. I'm not aware of any reason why they won't be able to make that commitment."

CASH AT THE READY

According to one analyst, the fear that the Rigases didn't have the financial wherewithal to meet the commitment was unfounded.

Banc of America Securities Corp. analyst Doug Shapiro said that Highland has about $400 million cash on hand to buy the stock, and can leverage the convertible shares easily.

"They do have the money to do it," Shapiro said. "Although the family has one payment due in the next few weeks, what they're trying to do is possibly accelerate the payments to send a message."

Shapiro said the plan would likely be to leverage the convertible notes. He said that unlike common stock — which can only be leveraged up to 50 percent of its value — convertible notes can be leveraged as much as 80 percent.

"They would only have to put 20 percent of the value in cash and can collateralize the rest," Shapiro said.

That would mean that Highland would have to come up with another $100 million in cash for the convertible notes.

Until recently, the Rigas family has been quiet about its ability to meet the obligations, a silence that Shapiro attributed to a reluctance to make the family finances public.

"The delicate part is that this concerns personal finances," Shapiro said. "They are under no obligation to disclose what their personal finances are.

"They are a little sensitive and I can understand that the family is in an awkward position. This sets sort of a dangerous precedent for them."

Although the Rigases have been known to be intensely private when it comes to their personal finances — as are others in the cable industry — they may have been forced to air their financial laundry to keep their stock from hitting rock bottom.

Already highly leveraged, Adelphia is trading at about 10 times estimated 2002 cash flow, compared to 12 to 14 times for the rest of the industry. Salomon Smith Barney Inc. analyst Niraj Gupta said the reason for the disparity is Adelphia's debt load.

"Adelphia is trading along the lines where we saw the stock in the same period about a year ago, during the height of the overbuilder threat," Gupta said. "I think you could say the same for Charter [Communications Inc.] and Cablevision [Systems Corp.], but Adelphia is the extreme. It has more debt in an environment where all stocks are going down. The ones that have more debt, their equity prices are going to get hit."

WHAT HIGHLAND OWNS

Highland 2000 principals include Adelphia co-founder John Rigas, Tim Rigas, executive vice president for operations Michael Rigas, and executive vice president for strategic planning James Rigas.

Highland holds about 60 million shares of Adelphia common stock, or about 34 percent of outstanding shares. Through Highland and other partnerships, the Rigas family owns virtually all of Adelphia's class-B super-voting shares, giving the clan 100 percent voting control over the company.

Highland's operations have been fairly secretive, and the Rigas family has used the vehicle to purchase cable systems when it didn't want to reveal the purchase price.

Most recently, Highland purchased Daniels Cablevision's systems in Carlsbad and Desert Hot Springs, Calif. for an estimated $480 million. Given Daniels's 80,000 customers, the deal worked out to be a record-setting $6,000 per subscriber.

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