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Banks Say: Liquidate Adelphia

9/01/2006 8:00 PM Eastern

A group of Adelphia Communications Corp. creditors — mostly banks owed about $5.2 billion — want the U.S. Bankruptcy Court for the Southern District of New York to force the cable company to liquidate rather than move forward with reorganization plan No. 5.

Adelphia, which filed for Chapter 11 bankruptcy protection in June 2002, sold its cable assets to Time Warner Inc. and Comcast Corp. for $17.4 billion in a deal that closed July 31. According to the court filings, the cash portion of that deal — $12.7 billion — has already been paid. Time Warner also is to transfer a 16% interest (valued at $4.7 billion) in newly issued Time Warner Cable stock.

With precious few, if any, Adelphia assets left to sell, converting the case to a Chapter 7 liquidation would speed up the process by which those creditors are to be paid.

The motion by the banks — including Bank of New York, PNC Bank, Wachovia, Calyon New York Branch (a unit of Credit Agricole of France), Societe Generale, Bank of Montreal and ABN AMRO — is the latest in a series of rows between Adelphia and its creditors. The sale to Time Warner and Comcast had been held up in the past because of squabbles between bondholders. On July 27, U.S. Bankruptcy Court Judge Robert Gerber, acting on a motion by Adelphia, moved to allow the sale without approval of a reorganization plan.

On July 24, Adelphia said it had reached a tentative agreement with some bondholders for a new reorganization plan that would pay bondholders about $1.08 billion. A hearing for that plan is expected in October.

Time Warner, which plans to issue stock in Time Warner Cable as part of the Adelphia deal, has been awaiting approval of the reorganization plan. The company has said publicly it could either issue Time Warner Cable stock via an initial public offering or, in the event of a reorganization, Time Warner Cable would be folded into the existing Adelphia shell and wouldn't need an IPO to have publicly traded stock.

In the court documents, filed Aug. 25, the banks called the latest reorganization plan “a hopeless failure.”

“It cannot be confirmed, it treats the creditors of those debtors as if they were appendages to the high-stakes conflicts among the holding debtors' various constituencies and, predictably, will result in no distribution (and therefore, no cutoff of interest payments) to any creditors of the obligor debtors,” the banks said.

The banks also believe the latest plan only benefits bondholders. “In whose right and for whose benefit do these proponents act? Not the banks,” the filing stated. “The plan is antithetical to their interests. Not the trade and other unsecured creditors. They receive full payment no matter who is doling out the cash.”

September