Adelphia: From bad to worse

Adelphia Communications is far from out of its financial crisis even though founder John Rigas and his family surrendered control of the ailing cable operator.

The resignation of Rigas and his three sons from Adelphia's board was aimed at coaxing bankers into affording Adelphia some badly needed cash to cure bond defaults, continue operations, and keep the company out of bankruptcy court. Rigas-family companies agreed to steer $1 billion worth of securities and cash flow from privately held cable systems to Adelphia to support loans that the cable company co-signed.

The big surprise from last Thursday's disclosure statements is the increasing size of family debts that Adelphia is on the hook for as well.

On May 2, Adelphia said it would be liable for $1.6 billion of the family's debt, which analysts expected to total around $2.7 billion. Now the company says it is liable for $2.5 billion and the family's debt now totals $3.1 billion. Adelphia offered no explanation for the rising debt levels, but it continued to alarm Wall Street executives.

Merrill Lynch junk-bond analyst Oren Cohen said that the removal of insider-dealing Rigas family members from Adelphia's board and executive ranks "do not address current leverage and liquidity concerns, which could still lead to a bankruptcy."

At the center of the crisis are $3.1 billion in Rigas-family loans—backed by Adelphia's credit—to buy cable systems, plus various securities of Adelphia itself.

To bolster Adelphia's balance sheet, the Rigases agreed to turn over $1 billion worth of Adelphia securities plus $90 million in annual cash flow from their privately-held cable systems. Analysts said the family turned over convertible bonds at the rate of 91 cents on the dollar, three times what the same bonds have been fetching in the open market.

At the end of the day, it looks like the Rigas family will have at least $1 billion in personal debt backed primarily by 60 million Adelphia common shares that were worth $170 million or so on Friday, a day after the Nasdaq lifted a week-long trading halt on Adelphia stock.

The Rigases are being rocked by new disclosures of just how extensively they used the publicly traded company to benefit themselves. It has been known for years that Adelphia systems leased real estate and cable converters from Rigas-family companies.

But The Wall Street Journal
revealed all sorts of financial streams to the Rigases. Even as their holdings exceeded $3 billion, they were steering Adelphia units to buy office furniture from a store controlled by the family, according to the paper, which also reported that Adelphia was helping pay for a golf course being built adjacent to the house of ex-CFO Tim Rigas. Family members regularly drew on company cash for other personal affairs. Now two federal grand juries are investigating the family's dealings with the public company.