Posted on 05/18/2002 11:50:29 AM PDT by arete
NEW YORK (Reuters) - Adelphia Communications Corp.ADLAE.O said on Friday that it is being investigated by grand juries in two states and it missed $44.7 million of debt and dividend payments, signs that a bankruptcy filing is imminent and amid a possible Nasdaq delisting.
"Their actions and disclosure are indicative of a company that plans to file for bankruptcy," said Harold Rivkin, president of H. Rivkin & Co. in Princeton, New Jersey, a distressed debt brokerage that trades Adelphia bonds. "Today's announcement confirms everyone's worst fears. It looks like the whole thing is unraveling."
The No. 6 U.S. cable TV operator, based in Coudersport, Pennsylvania, said grand juries in the Southern District of New York and the Middle District of Pennsylvania are investigating the company, and that it is cooperating fully with the probes.
Adelphia is mired in controversy and under investigation by the Securities and Exchange Commission over company-guaranteed loans to partnerships controlled by its founding Rigas family, and is trying to avoid a delisting from Nasdaq for its failure to file its 2001 annual report.
It said a hearing with the National Association of Securities Dealers, which regulates Nasdaq, was held on Thursday, and that no decision on a delisting had been made.
A delisting could trigger a cash crunch by empowering bondholders to force Adelphia to buy back $1.4 billion of convertible bonds for cash.
Adelphia has not returned calls seeking comment.
There has been no trading in Adelphia shares since they closed Tuesday at $5.70. The shares are down 82 percent since Adelphia in March disclosed the $2.3 billion in off-balance sheet loans to partnerships run by the Rigas family. The shares peaked at $87 in May 1999.
OFF-BALANCE-SHEET LIABILITIES
Adelphia, which has 5.8 million subscribers, said it will pursue its plan to sell assets, including systems in Southern California, Florida, Virginia and the Southeast, to "significantly" cut debt.
The company is the No. 5 U.S. junk bond issuer according to Merrill Lynch & Co., and has $19 billion of rated debt and preferred securities according to Moody's Investors Service.
Founder John Rigas quit as chief executive on Wednesday. His son Timothy quit as chief financial officer a day later. Adelphia has suspended an audit by Deloitte & Touche LLP, and said it may restate three years of financials.
Investors have fretted over off-balance-sheet liabilities after now-bankrupt energy trader Enron Corp. ENRNQ.PK used off-balance sheet items to hide debt and make its business look stronger.
The cable TV industry this year was also rocked as NTL Inc NTLD.OB . ,Britain's largest provider, agreed to restructure $10.6 billion of debt and sought bankruptcy protection.
"If I were (an Adelphia) bondholder, I would want my money back," said Germaine Ortiz, an analyst with David-Dinsmore Management Co. in Morristown, New Jersey, which sold its Adelphia convertibles after the Rigas loans were disclosed.
"After the problems NTL faced, and after Enron, as soon as you start hearing problems about off-balance-sheet liabilities you're better off being safe than sorry," she added.
Still, she said "there are companies out there who would be willing to buy some of their cable assets."
Adelphia's senior bonds on Friday rose to about 70 cents on the dollar, regardless of maturity, from 67 cents Thursday, traders said. This shows traders expect bankruptcy, because seniority, not maturity, determines what creditors recover.
The company's 6 percent convertible notes maturing in 2006, among the bonds Adelphia may be forced to buy back, rose to 36.25 cents on the dollar from 32.5 cents, traders said.
MISSED PAYMENTS
"The market is telling you ... the company doesn't have the ability to pay" convertible bondholders, said Tracy Maitland, president of Advent Capital Management in New York, which invests $1 billion in convertibles and does not own Adelphia. "Otherwise, they would be trading at least in the high 80s."
Traders and investors said nothing fundamental triggered Friday's bond price rises.
The Wall Street Journal said on Friday that federal prosecutors are examining possible accounting irregularities at Adelphia. The U.S. Securities and Exchange Commission is also conducting a probe into Adelphia's accounting.
Adelphia said it missed a $23.4 million interest payment on its 9.375 percent senior notes maturing in November 2009, and a $6.5 million dividend payment on preferred stock.
It also said subsidiaries missed a $14.8 million of interest payments on two other note issues, while certain subsidiaries made $4.8 million of interest payments on bank credit facilities. All of the payments were due on Wednesday.
Analysts said the company and units have 30 days to make the missed interest payments, or they will be in default.
"If I were a bondholder, I would sell and get out because the situation could get a lot worse," said Rivkin, who does not personally own Adelphia bonds.
Richard W.
Richard W.
Well at least you have managed to keep a sense of humor about it. I'm a bit cranky myself.
Richard W.
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