Adelphia stockholders stage sell-off as trading restarts, convertible buyers swoop in

By Ronda Fears

Nashville, Tenn., May 23 - When Adelphia shares re-opened Thursday, traders said there first was a flock of sellers in the stock - but more convertible buyers swooped in to buy the bonds, which are becoming more commonly thought of as oversold. As a result, all the Adelphia converts closed sharply higher.

Buying in the converts had begun earlier this week on improved recovery hopes.

Recovery hopes brightened Thursday on news that the Rigas have given up control of the company and will turn over some $1 billion in cable assets to the company as well as be liable for portions of the co-borrowing agreements that put the No. 6 cable company in dire straits a month ago.

"The company is still in default on several levels and they will probably not be able to avoid bankruptcy or some sort of severe restructuring," said a convertible trader at one of the major investment banks.

"But now it looks like there could be significant recovery for the bonds. There were even buyers for the preferreds, which will not fare as well, but recovery levels could still be higher than we thought last week."

Adelphia stock reopened at 12:30 p.m. ET Thursday and immediately fell by around $3 and hovered there for most of the session. The stock closed down $3.08 to $2.62.

The 3.25% convert due 2021 added 2 to 4 points. One dealer took the issue out at 56 bid, 57 offered and another at 54.5 bid, 57.5 offered.

The 6% due 2006 gained nearly 10 points. One dealer took the issue out at 56 bid, 57 offered and another at 54.5 bid, 57.5 offered.

Adelphia's 5.5% convertible preferred gained 6.5 points to 40.5 and the two 7.5% convertible preferreds were said to be similarly higher.

Trading activity in the convertibles was heavy early on, traders said, and also leveled off for about the last hour of the session.

A hedge fund manager in New York believes recovery levels could be in the 70% range for the Adelphia convertible bonds, and Wachovia analyst Sri Nadesan said that was not unreasonable.

Adelphia noted in a statement Thursday that if its shares cease to be quoted on the Nasdaq and are not listed on a national securities exchange, the company would be required to make an offer to purchase all of the outstanding 3.25s and 6% convertible notes at par plus accrued and unpaid interest.

Excluding amounts held by the Rigas family, as of March 31, there was $862.5 million outstanding on the 6% issue and $575 million on the 3.25s. Entities controlled by the Rigas family own $167.4 million of a separate class of the 6% issue and $400 million of a separate class of the 3.25% issue, Adelphia said, which will immediately be transferred to the company, thereby reducing balance sheet debt by $567.4 million.

The status of the put situation, however, is still up in the air.

Adelphia also said Thursday that it is in negotiations with its bankers, aiming to obtain additional capital in the near term while previously announced asset sales are worked on.

The company also said it plans to make a filing with the SEC on Thursday or Friday, disclosing certain related-party transactions. The company's delay in filing its 10K with the SEC brought about the possibility of its stock being delisted.

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