UPC Polska creditors object to plan, saying values company too low

By Carlise Newman

Chicago, Oct. 27 - UPC Polska Inc.'s official committee of unsecured creditors has filed an objection to the company's disclosure statement and reorganization plan in court, saying that distributions are based upon an unreasonable enterprise valuation of the company that is close to 50% less than the value that the committee's financial advisors preliminarily reached.

The estimated percentage recoveries in the disclosure statement are based on a value of $234 million.

The committee said its financial advisors determined that the company's enterprise value is materially higher than $234 million. Under Chanin's preliminary analysis Classes 3 and 5 would receive the same percentage recoveries on their claim, but Class 4 - the only class of insider-creditors - would receive a percentage recovery of 49%.

The company and its insider unsecured creditors have wrongfully transferred funds among and between themselves and jerry-built the valuation process hoping to mislead the court, the unsecured creditors committee and non-insider unsecured creditors, the committee claimed in its filing.

"The object of the insiders was to keep for themselves 100% of the equity and achieve a greater recovery than the 26 cents on the dollar described in the disclosure statement," they said.

In addition, the creditors alleged that the disclosure statement contains inadequate, inaccurate, incomplete or omitted and potentially misleading information about a loan agreement entered into between UPC Polska and UPC NV in 2001; the loan agreement between the company and Belmarken NV in 2001; the use of $139 million in cash proceeds from the sale of its D-DTH business in 2001; and the ranking of the Telecom Pari Passu notes, the Telecom junior notes, the Belmarken notes, and the agreement between UPC Telecom and Belmarken to subordinate the Telecom-owned UPC Polska notes.

The committee also believes the plan improperly includes distributions to what are described as insider unsecured claims but the committee says are subject to re-characterization as equity interests or equitable subordination. The committee has concluded that there exist significant legal issues with regard to the characterization as debt of inter-company transfers made by the parent company, UPC NV to UPC Polska between 1999 and 2001, and the propriety of inter-company transfers made to its subsidiary, Poland Communications Inc., in December 2002.

The committee will begin negotiations with the company and its insider creditor, UPC Telecom, towards a consensual restructuring.

Meanwhile, UPC Polska has scheduled a hearing on Oct. 29 in regard to the adequacy of its disclosure statement, filed on July 28.

The committee said it has sent comments to the company with proposed language to be incorporated into the disclosure statement.

But UPC Polska chose not to include certain of this language in its statement, thereby necessitating the instant objection, the committee said.

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