Adelphia steps up talks to raise capital
Copyright 2002 / Los Angeles Times
Los Angeles Times…05/28/2002
Adelphia Communications Corp., racing to pay off loans due June 15, is in heightened talks with several parties about deals that could raise capital and prevent the cable company from filing for bankruptcy protection, sources close to the situation said Monday.
Wall Street firms including Blackstone Group and Apollo Group have proposed making an equity investment in the company of $1 billion or more.
Meanwhile, billionaire-turned-cable-mogul Paul Allen had a team in Los Angeles over the weekend assessing the condition of Adelphia's cable systems here, laying the groundwork for a formal bid that could be worth more than $1.5 billion.
Sources said an asset sale may be more attractive to the company because of the fire-sale value of Adelphia shares right now. Yet an investment might be easier to pull off before the June 15 deadline that Adelphia faces to pay certain loans that are already in default.
"We're working around the clock to beat the June 15 deadline, when the defaults must be remedied," said one source involved in the discussions. "The chances of getting a deal done by then aren't great because the company is so disorganized. Half of their executives have resigned in the last week, so it's hard to have a constructive discussion."
Adelphia's stock has plunged nearly 90 percent since disclosures in March that the founding Rigas family had borrowed $2.3 billion using questionable off-balance-sheet practices that leave the public company liable. The stock closed Friday at $2.77, up 15 cents, on Nasdaq.
The company is under investigation by the Securities and Exchange Commission and by attorneys general in Pennsylvania and New York. Over the last week and a half, founder John Rigas and his three sons who ran Adelphia have resigned from top management and from the board.
The company is being run by a committee of four outside directors, led by interim Chief Executive Erland E. Kailbourne, who are struggling to keep the company afloat.
Adelphia, weakened under a towering debt of more than $15 billion, needs an estimated $3 billion to operate over the next two years.
Adelphia announced several weeks ago plans to sell systems, including those in Los Angeles, that serve as many as 3 million cable subscribers. The nation's sixth-largest cable operator, Adelphia has a total of 6 million subscribers, mostly in the East.
For more than a week, Adelphia has been in discussions with Allen, who controls Charter Communications Corp., the nation's fourth-largest cable operator, with about 8 million subscribers.
Allen proposes buying systems that serve 450,000 of Adelphia's 1.2 million customers in Southern California. Under the transaction, Allen would have an option to purchase the remaining properties at a future date.
Breaking the deal into two parts would allow the parties to speed the process by simplifying the deal. Adelphia owns the 450,000 subscribers outright but shares the others in a 75 percent-25 percent joint venture with AT&T Broadband. Despite its minority stake, AT&T has the right to approve any sale.
Allen also is interested in buying Adelphia systems in Georgia that are owned by the Rigas family.
The joint venture properties, however, are the most desirable of those up for sale. They are in some of Los Angeles' most affluent neighborhoods, including Pacific Palisades, Brentwood, Bel-Air, Manhattan Beach and Redondo Beach.
The 450,000 customers are mostly in outlying areas such as Palmdale, Thousand Oaks, El Monte and Ventura.
The initial sale probably would be valued at more than $1.5 billion, although Adelphia's asking price is closer to $2 billion.
Adelphia has accumulated its 1.2 million Southern California subscribers in 90 systems over the last two years.
About 800,000 of the subscribers came as a result of the October 1999 purchase of Century Communications Corp., the leading cable provider in Los Angeles. Allen's Charter was the losing bidder for Century.
Allen is considered the front-runner this time around. Los Angeles would give Charter big-city systems that are more economical to operate than the small to mid-size properties that make up the majority of Allen's holdings.
Yet sources said chances are slim that the deal could be pulled together by June 15.
Under pressure from creditors, directors and shareholders, Tim Rigas resigned as chief financial officer May 16, a day after his father, John Rigas, who founded Adelphia in 1952, stepped down as chairman, chief executive and president.