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Adelphia Sinks on Bankruptcy Concerns

By Jonathan Stempel

New York (Reuters) – Adelphia Communications Corp.'s bond prices have sunk to less than half their face value, as investors believe the embattled cable TV provider may have fewer assets to distribute in a bankruptcy.

Adelphia shares on Wednesday also tumbled to an all-time low, as analysts warned the No. 6 U.S. cable TV operator could file for bankruptcy protection by Monday.

Adelphia shares, which three years ago peaked at $87, closed Wednesday at 12 cents, down 9 cents. Its bonds have lost nearly one-third of their value this week.

The declines came after the company, which is based in Coudersport, Pennsylvania, said on Monday it overstated cash flow by nearly 15 percent for each of the last two years -- by $210 million in 2001 and $160 million in 2000. Adelphia was already the subject of three federal probes.

Adelphia's bonds fell 1 cent to 2 cents on the dollar on Wednesday. Its 10.875 percent notes maturing in 2010 were bid at 45.5 cents on the dollar, yielding 28.13 percent.

"The bond prices mean bankruptcy is imminent," said Kevin Kuzio, a high-yield analyst at KDP Investment Advisors in Montpelier, Vermont. "There is an element of fear and huge uncertainty with respect to the company's financials."


Adelphia, which over the weekend fired accountant Deloitte & Touche LLP, is under investigation by the U.S. Securities and Exchange Commission and two federal grand juries after disclosing off-balance-sheet loans, estimated by analysts at over $3 billion, to the founding Rigas family and others.

It has been delisted by the Nasdaq stock market, has defaulted on $7 billion of bank loans and is expected to miss $44.7 million of interest and dividend payments due Saturday, when a 30-day grace period expires.

Adelphia on Monday also cut its revenue estimates for 2000 and 2001, and trimmed its reported subscriber count by 47,000 to 5.76 million. It said prior management's disclosures were "unreliable," and said current management, led by interim Chief Executive Erland Kailbourne, intends to fix that.

"You have a whole new ballgame," said Diane Keefe, who runs the Pax World High-Yield Fund and sold her Adelphia bonds on Monday and Tuesday. "Adelphia essentially wiped out $2 billion of asset value off its books by falsifying cash flow and capital expenditures quarter after quarter."

An Adelphia spokesman, who asked not to be identified, said on Wednesday "the company's public filings speak for themselves."

In the last month, founder John Rigas resigned as chief executive, his son, Timothy, resigned as chief financial officer and John Rigas' son-in-law, Peter Venetis, quit Adelphia's board under pressure from other directors.

Adelphia's "distressed" bonds trade below where Kmart Corp.'s bonds traded when Kmart, then the No. 2 U.S. discount retailer, sought bankruptcy protection in January.

Bonds of billionaire Paul Allen's Charter Communications Corp. , the No. 4 U.S. cable TV operator, have fallen several cents on the dollar in the last week, hurt because it is in the same sector as Adelphia, traders said.


Adelphia is trying to sell systems covering nearly half its reported subscribers. Even if it succeeds, Kuzio said bond investors wonder how much cash Adelphia could generate after a bankruptcy, which analysts said could drag on for three years.

Adelphia, he said, would have more control over its destiny by seeking bankruptcy protection itself.

"Once the (30-day) grace period is over, any three senior noteholders can put the company in bankruptcy involuntarily," he said. "A voluntary bankruptcy would leave Adelphia in control to create its own recovery plan."

Adelphia's Century Communications unit, which the company bought in 1999 for about $5 billion, voluntarily sought bankruptcy protection on Monday.

Keefe, whose fund practices "socially responsible" investing, held off on selling Adelphia bonds despite a report on Friday suggesting Adelphia had inflated its results and kept two sets of accounting books. The senior bonds traded around 74 cents on the dollar before the report.

"Adelphia was making itself out to be more ethical than other cable companies by not offering pornography, and we look for bonds of companies that improve and preserve quality of life," she said. "I thought it was my role as a corporate governance activist to help get the Rigas family out and try to preserve the value of the business for my shareholders."

Monday's filing changed that.

"Now I realize the company's financial disclosures made the business look much healthier than it actually was," she said. "The investment merits weren't there any longer."

? Copyright 2002, Reuters