Crisis grows in Coudersport

NASDAQ delists Adelphia, which could trigger bankruptcy; Allen walks
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Adelphia Communications' financial crisis intensified as multibillionaire Paul Allen walked away from talks to buy systems and investors and lenders began feuding.

Late Thursday, Allen's financial team broke off talks with Adelphia after once offering a lowball bid of just $2,700 per subscriber for some of the company's cable systems. The talks were Adelphia's best hope for raising cash and avoiding Chapter 11.

Other tense moments in a frenzied week include NASDAQ's decision that the exchange would delist Adelphia from its National Market System, which in turn could trigger a $1.4 million demand from certain bondholders. Also, the company acknowledged that it has formally defaulted on $7 billion in bank loans, although the banks are so far not demanding repayment. Either of those moves would plunge Adelphia, headquartered in tiny Coudersport, Pa., but the nation's fifth- largest cable operator, into Chapter 11.

Ex-Chairman John Rigas is out of the loop, as he and his sons were exiled from Adelphia's boardroom and executive offices. Wall Street and industry executives were startled by the Memorial Day weekend disclosure of how extensive Rigases' insider dealings with Adelphia had been.

In an SEC filing, Adelphia detailed not just the multibillion-dollar loan guarantees to family companies but how the once-multibillionaire family exploited company apartments and steered business to a family-owned car dealership and furniture store (see page 8).

Cranky stockholders also attacked Adelphia's "new" management—the directors who have long been on Adelphia's board but aren't Rigas family members.

Leonard Tow, who collected 12% of Adelphia's stock after selling his Century Communications to Adelphia three years ago, blasted the new board's move to sell Adelphia's assets. Tow, in a letter to Adelphia interim CEO Erkie Kailbourne, said that a cable-system fire sale "would strip the company of its ability to conduct an orderly and profitable disposition of the remainder of the company's cable assets when and if it is necessary."

Kailbourne fired back, "We have asked you for any concrete proposal you have as to how to restructure the company's debt" and asked, "what specific, concrete alternative or alternatives you propose. You will, I know, understand that general ideas without concrete details as to how they will be implemented are of little use at this time."

Kailbourne relented to Tow's demands to be added to Adelphia's board of directors and said Tow would be fully briefed during a board meeting that had been scheduled for last Saturday.

As long as Adelphia stays out of bankruptcy court, one key arena is the clash between equity holders and lenders. That's because, while nobody really wins if Adelphia lapses into Chapter 11, if it goes, the banks lose the least and the stockholders lose pretty much everything.

So it is Adelphia's banks that are pressing for system sales. They're ahead of all bondholders, trade creditors and certainly stockholders when it comes to collecting money. Adelphia's total debt stands around $2,700 per subscriber, and banks are owed around $1,600 per sub. So, even if it takes a fire sale to get a fat injection of cash into Adelphia, the banks aren't harmed. And they won't lend any more money without some kind of injection.

The shareholders are at the end of the line in a Chapter 11 proceeding, but they also don't want Adelphia to live on as a shell, stripped of its best properties and left with a bunch of old rural systems bought from Century and FrontierVision that haven't yet been rebuilt.

Adelphia's investment bankers—primarily Salomon Smith Barney—have been scrounging for a player to put some cash in, but it was looking bleak. Allen, chairman of Charter Communications, would love to combine Adelphia's Los Angeles systems with Charter's nearby properties. And he has plenty of liquidity, recently selling $500 million worth of USA Interactive shares lately plus steady sales of Microsoft shares.

But industry executives said that Allen's financial team found the properties in worse shape than expected, requiring a lot of rebuild capital. Further, Allen would have to lend Adelphia cash today for systems that couldn't actually be sold until after six to nine months of local-government reviews. Bankers couldn't readily find a quick way to protect Allen's loans if things still went sour.

"Pre-bankruptcy, it's over," said one Allen adviser of any asset buys. "We'll wait to see if there's another chance in bankruptcy court."

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