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June 26, 2002
The country's sixth largest cable company, Adelphia Communications Corp. (Nasdaq: ADLAC), announced Wednesday that it has filed for Chapter 11 bankruptcy protection. The company says it will continue to pay its employees and operate its networks as it works to straighten out its finances (see Adelphia Files Chapter 11).
Adelphia will operate its businesses and upgrade its cable plants, thanks to a debtor-in-possession facility of $1.5 billion that it expects to have approved at the end of this week.
Among the interesting financial footnotes of Adelphia's past: Shareholders were apparently funding the construction of a golf course as well as lending money to company officers to pay off margin debt.
Since April, the Securities and Exchange Commission (SEC) has been looking at the off-the-balance sheet loans Adelphia made to the family of its founder, John J. Rigas, who stepped down from his position as chairman, president, and CEO on May 15. By the end of May, Timothy Rigas, the company's CFO; Michael J. Rigas, its executive VP of operations; James P. Rigas, its executive VP of strategic planning; and James R. Brown [!], its VP of finance had all resigned.
In the company's bankruptcy filing, Adelphia lists assets of $24.4 billion and liabilities of $18.6 billion as of September 30, 2001. Those totals, however, do not include off-the-balance-sheet obligations.
The company's debtors include Motorola Inc. (NYSE: MOT), Scientific-Atlanta Inc. (NYSE: SFA), Arris Group Inc. (Nasdaq: ARRS), ADC Telecommunications Inc. (Nasdaq: ADCT), C-COR.net (Nasdaq: CCBL), Fujitsu Ltd. (KLS: FUJI.KL), and a slew of banks and broadcast networks.
Since the Rigas family gave up control of Adelphia's board of directors, the company has disclosed that its revenues and subscriber figures had been overstated. In early May, the company revealed that some $3.5 billion had been borrowed by the Rigas family and their associates largely without the approval of Adelphia's board or its shareholders.
Adelphia's continued efforts to untangle its finances have yielded several noteworthy disclosures to the SEC in recent months. Some of those include:
Adelphia, through a subsidiary, had been making loans to a Rigas-controlled partnership that owns the Buffalo Sabres, a National Hockey League team.
The Rigas family and its entities had used Adelphia shares and debt to secure margin loans from several investment banks. Since January 2001, the Rigas family and their associates have used Adelphia's cash to make some $241 million in payments for margin calls.
At one time, Adelphia had seven people on payroll whose job was to "provide services to members of the Rigas family," according to one SEC filing. All seven were either fired or transferred to the Rigas family payroll, the filing states.
Adelphia had also ceased construction of a golf club and golf course, located on approximately 830 acres of land near Coudersport, Pa. The golf course was another Rigas family venture that relied on Adelphia's coffers. Adelphia fired the 11 people on its payroll whose primary jobs were links-related.
Given all it's been through, Adelphia's long expected bankruptcy comes as a relief to its customers and employees. "Entering into these proceedings will enable us to fully evaluate our enterprise without the immediate pressure to sell valuable assets that may well benefit the company in the future," says the company's interim CEO, Erland Kailbourne, in a statement released Wednesday.
Investors, however, continue to distance themselves from the cable operator. Adelphia shares dropped $0.01 (13%) to $0.13 in early afternoon trading on Wednesday.
— Phil Harvey, Senior Editor, Light Reading
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