It could be Half-Adelphia

To reduce its huge debt, the woeful cable MSO will auction its best properties

Adelphia Communications will auction its best properties as part of a plan to wiggle out of its debt and insider-dealing scandal. Too bad some of the most obvious prospective buyers may be constrained from bidding.

By taking bids for properties serving 2.75 million subscribers including systems in Los Angeles and South Florida, Adelphia will likely shrink 40%. The resulting Adelphia would be a much different company, owning systems in places like Erie, Pa., Martha's Vineyard, Mass., and Rutland, Vt.

The biggest markets Adelphia could dominate would be Buffalo, N.Y., and Cleveland. The company would also own systems in the suburbs of Pittsburgh.

After acquiring systems aggressively since 1999, Adelphia has no choice but to sell. Forget the 70% drop in the company's stock price. The real crisis is that lenders are squeezing Adelphia to pare its $14.5 billion debt load. Adelphia's leverage of nine times cash flow was considered huge even before the company disclosed that it was on the hook for $1.6 billion-$3 billion in loans taken out by controlling shareholder and Chairman John Rigas.

Investment bankers Salomon Bros. and Daniels & Associates will run the auction. Adelphia executives plan to sell only 75% of the portfolio that's on the block, unloading just the chunks that get the best bids. That would generate around $7.5 billion and leave Adelphia with 3.6 million of its current 5.7 million subscribers.

Up for sale are metro Los Angeles. (1.2 million subscribers); Florida, including the suburbs of Miami, Palm Beach and Fort Lauderdale (750,000 subscribers); Virginia, including Charlottesville and Blacksburg (575,000 subscribers); and systems scattered across six states in the Southeast.

The most obvious prospective buyers are players in the L.A. market, Cox and Charter, and the biggest Florida players, AOL and Comcast. However, only Cox has much flexibility right now. Comcast isn't seen as much of a buyer while its takeover of AT&T Broadband is being scrutinized by regulators. Charter's debt is already nine times cash flow (vs. five to six times for other MSOs). AOL is having its own financial crisis that probably wouldn't be helped by a multibillion-dollar cable acquisition.

"The question is, who's there that's got the liquidity and the regulatory freedom to do it?" asked Sanford Bernstein media analyst Tom Wolzien. And the question is the easy part.