Sell Adelphia Debt or File?


Some programmers are getting ready to file claims, by next month's deadline, for the millions of dollars they say Adelphia Communications Corp. owes them.

But some cable networks have already sold off their debt, reportedly collecting 30 cents to 50 cents on the dollar, so they won't have to slog through the bankruptcy process, sources said last week.

Adelphia, which filed for Chapter 11 bankruptcy protection in June 2002, has notified all its creditors that they must submit their "proofs of claim" by a Jan. 9 cut-off date. The MSO's unsecured creditors include a long laundry list of cable networks that say that they are owed more than $200 million in unpaid license fees.

Home Box Office is one of the biggest creditors on that list, looking to collect roughly $34 million from Adelphia. Starz Encore Group LLC is owed in the neighborhood of $21 million.

"We will file our claim," Starz Encore spokesman Tom Southwick said last week. "Our sense is Adelphia is doing better, and they're gaining confidence that the bonds they have are increasing in value. And there's a growing degree of confidence in terms of their ability to pay some of this back. We'll follow the process through."

International Channel Networks and Game Show Network — both of which claim Adelphia owes them $1 million — and Starz Encore are being represented in the bankruptcy proceedings by New York attorney Aaron Cahn.

"We have filed proofs of claim for some of our clients, and others are still working up the numbers," Cahn said. "We expect to do that before the deadline."

ABC Cashed In

Several cable networks have already sold their debt off, to so-called factoring companies, rather than wade through the bankruptcy process and have to wait to get their money.

For example, ABC Cable Networks Group — which owns Disney Channel, ABC Family and SoapNet — has sold the debt for one or more of its networks, several sources said. Officials at ABC Cable couldn't be reached for comment.

In general, programmers who've sold their debt have been getting in the range of 30 cents to 50 cents on a dollar, according to one cable executive.

Several programmers said they have been approached by companies looking to buy their Adelphia debt. One such company claimed to have already bought $50 million worth of the MSO's debt, said one programming official.

Adelphia officials declined to comment in much detail last week, other than saying that the Jan. 9 deadline had been set for claims to be filed and that the process does allow them to review their contracts with vendors.

Carriage Talks

Even as the bankruptcy proceedings progress, Adelphia is talking to programmers about restructuring carriage deals, several sources said.

Since filing for bankruptcy protection this past summer, the MSO has told programmers that its first priority has been nailing down retransmission-consent deals, so it doesn't have to worry about flare-ups with TV stations pulled from its cable lineups.

Ultimately, under Chapter 11, Adelphia will have to decide which carriage deals with programmers it will "assume" or "reject."

Some programmers said Adelphia has taken the stance that it plans to "reject" its affiliation deals. But that's likely just a preliminary negotiating stance, one that serves Adelphia well for several reasons.

First of all, if Adelphia "assumes," or accepts, a contract with a cable network, that means the MSO is obligated to pay that programmer all the old license fees — the pre-petition debt — that's owed to them. And there's no reason Adelphia would just want to immediately pay out all that money.

In fact, Adelphia is using this opening to try to renegotiate its affiliation agreements at better terms, like lower license fees.

Schleyer Quip

Adelphia CEO Bill Schleyer alluded to this situation — the leverage Adelphia has gained with cable networks via Chapter 11 — at a Western Show panel on Dec. 3. He said the MSO had "uniquely solved the sports programming problem by declaring bankruptcy," sparking laughter.

One cable official expects Adelphia "to reject some of the contracts, so they can either negotiate a settlement or get a better deal. What they're going to say is, 'I'm going to reject your contract unless you let my assume it at X, Y and Z.' And that will be a big discount against what's owed, which is why you've seen a couple of guys sell their claims."

If Adelphia was to reject a carriage deal with a programmer, and the bankruptcy court signed off on that, that programmer could potentially pull its network off the cable operator's systems.

"They can either assume or not assume our deal," one programmer executive said. "If they assume, they owe us money. If they don't, assume we can terminate service or give them an off-the-shelf deal."

The fact that cable networks have "executory contracts" with Adelphia that can be rejected or accepted actually gives the programmers more time to file their claims, one source said.

Under bankruptcy law, programmers have until the bar date, Jan. 9, or 30 days after Adelphia files a motion to reject one of their contracts, whichever comes later, to file a claim, that source contended.

It looks like many programmers are abiding by the Jan. 9 deadline.

Meanwhile, Adelphia is talking to some networks. The MSO will most likely seek cuts in license fees in exchange for granting rollouts of programmers' new products, or launching spin-off networks.

Programmers, in turn, will most likely try to get at least part of the money owed them in these negotiations with the MSO.

A Renegotiation

"Most programmers said it's like a renegotiation," one cable veteran said. "Programmers are going to say to Adelphia, 'We'll give you a break here, but we want some distribution commitments. Give us a launch in L.A., and we'll take a 30% haircut [on license fees].'"

A number of networks are in the middle of that process.

"We're trying to negotiate an agreement with [Adelphia officials] that makes sense for both of us, puts us in a position to collect pre-petition debt and do a deal that makes economic sense for them and that would extend our agreement," one cable-network official said. "But we will only do a deal if it's a good deal for us."

Starz Encore has been talking to Adelphia about its contracts, according to Southwick.

"We've been, it's fair to say, in intense discussions with them and very optimistic that we'll be able to work something out here fairly soon," he said. "We really think that with some of the new products we've got, that this is going to be a win for both them and for us. We think we can do a lot to help them drive revenue."

Playing Fair

Several programmers said Adelphia has been fair-minded.

For example, Adelphia, like most MSOs, has received upfront launch fees to carry networks. In many cases, networks that paid launch fees are now just starting to levy license fees.

"Under bankruptcy rules, Adelphia could go to court and say, 'We can't afford to pay this,' and could ask for permission to drop a service" after pocketing the launch fees, the source said. "But they are not doing these things. Others might be very aggressive about taking advantage of such an opportunity."

Adelphia owed so much money to cable networks because it lagged behind in paying its license fees.

Since the Chapter 11 filing, Adelphia has actually been on time in paying those fees.

"That's been the nicest part about this," one programmer said.