Adelphia flat as market weighs value of assets against debtload

By Ronda Fears

Nashville, Tenn., May 17 - Adelphia Communications convertibles were flat Friday as the company revealed it is under investigation by two federal grand juries, although there still was no news on whether the stock would be delisted by Nasdaq. Some believe the convertibles are putable regardless of the Nasdaq's decision, but there hasn't been any move toward that end.

The two Adelphia convertible bonds were quoted at 34 and the three preferreds at 15.

After an initial sell-off, holders now appear to be waiting for more information. Some believe it's worth holding onto the convertibles, asserting that Adelphia's assets are real and valuable, and that a full recovery is possible even in a bankruptcy.

"If the assets are as they are represented, and the liabilities, then the converts could provide a return. But if they aren't, and there's already enough information to cast doubt, then they could also go to zero," said Tom Dinsmore of Davis-Dinsmore Management Co.

"That's an argument that I can understand, but I'm going to let somebody else make that money, or bet. The instant that there was an indication there was a problem, we blew it out. I told my trader to sell it, sell it for what you can get. I will not put up with that kind of crap."

The Nasdaq did not make a decision about delisting Adelphia stock after a hearing Thursday, but the stock was halted Wednesday "for additional information" by Nasdaq.

Jeremy Howard, head of U.S. convertible research at Deutsche Bank Securities, said the fact that Adelphia's stock is no longer quoted makes the convertibles putable whether Nasdaq delists the stock or not. He thinks it would be a good idea to exercise the puts.

"I would put. At least then you get a reasonable chance at some recovery," Howard said, noting that in that situation the bank covenants would preempt payments to any bondholders, and that could bring the question of bankruptcy to a head.

"It definitely looks to me like they will have to file (bankruptcy). It's really sad. This company is not insolvent."

Adelphia does have hard, valuable assets, the analysts said, but added that the market has become skeptical of the subscriber numbers Adelphia has been supplying since they have been caught providing misleading debt figures.

"The distressed levels of the convertibles is justified," Howard said. "The bank debt levels reflect the lack of disclosure and not knowing how much debt is correct."

Adelphia bank debt has been bouncing around this week but generally quoted in the 80s.

There was a recommendation out Friday on the Adelphia senior notes and there have been a couple of recommendations this week on the converts.

"In our estimate, the possibility of a bankruptcy filing has become more likely than it was a few weeks ago. Questions remain as to whether recent management changes and the possibility of asset sales would secure the company much-needed time to deal with its various constituents," said Bear Stearns high yield analyst Stephen Weiss in a report.

"While uncertainty and volatility are likely to remain, we still suspect that the parent company senior notes could end up being par securities at the end of the day. Because we believe that recent trading levels may already largely discount the prospects of a potential restructuring, we maintain our buy recommendation at this juncture."

Adelphia's notes were quoted unchanged to up a point on Friday with, for example, the 10¼% notes of 2011 at 70¼ bid, 71¼ offered (both levels flat, or without accrued interest).

Eventually, regulators will force the information out of Adelphia, Howard said, but it's an ugly process since Adelphia is unwilling to come forward with the 10-K.

"It's going to get messy," Howard said.

"It's incredible to me that they were prepared to let the stock go to zero rather than file the 10-K and make a disclosure. That's got to imply something pretty nasty. The market is reacting as if they believe there is a monster in the cupboard."

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