Adelphia convertible holders hold on as Moody's says recovery slim to none

By Ronda Fears

Nashville, Tenn., June 5 - Those left holding Adelphia's convertibles were disheartened by the Moody's projection Wednesday that recovery will be slim to none.

But there are no buyers for the paper, or bids are so low that holders are just holding on and will see what they can get in the seemingly inevitable and imminent bankruptcy of the sixth largest U.S. cable company.

Actually, some were buying Adelphia shares last Thursday and Friday, hoping to improve their position.

"Late last week, when it seemed to be very bleak, we started buying shares. You saw the little spikes in the stock after trading resumed," said a convertible hedge fund manager in Chicago.

"If there is something of a company to have stock in, we're just hoping we might have something of value there, and a bigger stake in it than we did have. Moody's doesn't seem to think we'll be left holding anything of value with the stock. We're hoping there will be something left of a company, though."

Some market players and observers had been calculating that recovery for Adelphia convertible holders could be as high as 70%.

Moody's said on Wednesday, when it cut Adelphia's ratings once more, that recovery levels indeed could be 75% to 80% for the straight debt but convertible holders - the notes as well as preferreds - would get much less, if anything.

"We believe that Adelphia noteholders can reasonably be expected to realize still good recovery value approximating as much as 75-80% or more," Moody's said.

"Convertible subordinated noteholders and preferred stock holders are not expected to fare nearly as well and may in fact recover very little, if anything, relative to the face value of their claims. The common equity on the company will almost certainly be wiped out in its entirety."

Moody's and most of the market now expect that Adelphia is on the brink of filing bankruptcy.

Highfields Capital Management, with a large stake in Adelphia due to its convertible holdings, urged the company last week not to do a piecemeal or fire sale of the assets, but to sell it in whole or file bankruptcy so that an orderly restructuring could take place.

"I think a filing is perhaps just days away," said Jeremy Howard, head of U.S. convertible research at Deutsche Bank Securities.

"I think this is going to be another lesson in subordinated discount. The [convertibles] are just dead. I would be tremendously surprised if they traded at all. If you're holding Adelphia now, you might as well hold on."

Traders said that was exactly what was going on.

The Adelphia convertibles were "really not moving at all," said a convertible trader at a major investment bank in New York.

"There might be some low-ball bids out there, but no one's going to take 10 cents on the dollar at this point. You may not get anything out of the bankruptcy, but you're willing to take that chance now rather than sell at 10."

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