Adelphia investors flee, converts plunge 21-25.5 points

By Ronda Fears

Nashville, Tenn., May 15 - Adelphia Communications stock was halted Wednesday but a sell-off in the converts sent them plunging 21 to 25.5 points on bankruptcy fears and "a complete collapse in trust in management as well as the corporation's integrity," as one dealer put it.

CEO and founder John Rigas, 77, stepped down amid a scandal involving potential debt defaults and a government investigation into accounting practices and off-balance sheet dealings with the Rigas family. The company also announced Wednesday an internal audit was suspended while an investigation into the delay of its 10-K filing is conducted and the flagging cable provider hired a high-profile attorney for advice in the probe of the 10-K filing. The news also sparked downgrades by Moody's and S&P.

"People are just getting destroyed," said a convertible trader at a hedge fund based in New York.

"We got out a while ago, saw an opportunity to actually make a little money, and flew the coop. There was a lot of money to be made (on the Adelphia converts) at one point, but that was some time ago."

The 6% converts due 2006 plummeted 25.5 points on the day to 44.5 bid, 45.5 offered. The 3.25% due 2021, which are putable at par on May 1, 2003, plunged 23 points to 49 bid, 49.5 offered but were seen as low at 47 intraday. The 5.5% convertible preferreds fell 21 points to 29.5.

Nasdaq, which has already threatened to delist the stock due to the delay of Adelphia's annual report, halted the shares at 8:18 a.m. ET at $5.70 for "additional information requested." A Nasdaq hearing is scheduled for Thursday.

Delisting of the stock would result in Adelphia having to offer to buy back its convertible notes, the $862.5 million of 6% notes due 2006 and the $575 million of 3¼% notes due 2021.

"Holders of the 3 1/4s and the mandatories are feeling the most pain," said a convertible trader at a hedge fund in New Jersey.

"The 3 1/4s are putable at par in about a year but so what? They're selling assets, some of their best, and they won't be able to get market prices. Even then, will they be able to service some $19 billion in debt? The rating agencies don't think so. They are probably in default now and Moody's is talking about bankruptcy."

Moody's cut the Adelphia converts to Caa2 from Caa1 and the convertible preferreds to Caa3 from Caa2.

"We now believe that the prospect of a potential bankruptcy filing is more likely and may ultimately be unavoidable," due to the delayed 10-K filing, ratings triggers, cross-default and cross-acceleration language in Adelphia's debt instruments, Moody's said.

"Today's action represents our belief that we may in fact be in more than just a technical default situation today, that the situation may have deteriorated further and that there is now little time left to remedy the same."

Standard & Poor's cut the Adelphia convertibls to C from CCC- and the preferreds to C from CC, expressing concerns along the same lines.

The Adelphia converts were beginning to trade on distressed desks by the end of the session, one dealer said.

"Our distressed desk was trading Adelphia by the end of the day," the dealer said. "They weren't really involved before today, but that's where this paper is heading now."

Rigas has been succeeded on an interim basis by Erland E. Kailbourne, 60, former CEO of the New York region of Fleet National Bank, who has been an independent director of Adelphia since 1999 and who is currently chairman of the Adelphia board's audit committee.

Adelphia, the sixth largest U.S. cable company, said it would conduct an investigation of issues raised in connection with preparing its delayed annual reports, and said the audit being conducted by Deloitte & Touche would be suspended until the company's investigation is complete.

The company has retained David Boies to advise it on financial reporting and other issues. Boies led the government's antitrust case against Microsoft and was Al Gore's chief lawyer in the presidential election recount battle, according to the Associated Press.

The investigation comes six weeks after the company disclosed it guaranteed $2.3 billion in loans to partnerships controlled by the Rigas family, which founded the company in 1952.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.