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Adelphia Moves Closer to Chapter 11 Finale

2/01/2004 7:00 PM Eastern

Adelphia Communications Corp. made moves last week toward filing its long-awaited reorganization plan, asking the U.S. Bankruptcy Court for the Southern District of New York for permission to enter into negotiations with Deutsche Bank Securities Inc. for an $8 billion loan that could be used to refinance debt.

According to the Jan. 22 filing with the court, Deutsche Bank would lend Adelphia the money to pay off secured bank debt after emerging from bankruptcy.

Adelphia said it could also pay off that debt through a bond offering, cash from the exit facility, or a combination of both.

KEY REORG STEP

Deutsche Bank has "actively pursued" the provision of exit financing and submitted a preliminary outline of potential terms and conditions, which is nonbinding and would require substantial negotiation, according to the filing.

The Deutsche Bank loan appears to be one of the many steps Adelphia must make before submitting its reorganization plan.

That plan is due before the court on Feb. 17, but Adelphia has received extensions for past plan deadlines.

Adelphia officials have publicly said the company expects to file the reorganization plan in the first quarter of this year.

According to documents filed with the bankruptcy court, one possible reorganization option involves paying off the bank debt and co-borrowing facilities; assuming certain capital leases and other debt obligations; repaying, in cash, amounts outstanding on a debtor-in-possession facility; making cash payments to satisfy administrative priority claims and paying other fees and expenses; and converting trade debt and debt from senior unsecured creditors into equity.

A hearing on the loan matter will be held on Feb. 11 at the U.S. Bankruptcy Court in Manhattan.

SUBS GROWING

The loan request came just days before Adelphia filed December operating results with the court, which showed strong growth in basic and high-speed data subscribers.

According to the report, filed Jan. 26, Adelphia added about 35,000 basic video subscribers during the month, ending the period with 5.47 million customers.

High-speed data subscribers rose by nearly 34,000 to 1.02 million in December.

Digital subscribers fell slightly — by about 7,000 customers, to 1.95 million — probably due to changes Adelphia has made in the past few months in repricing its digital services.

Revenue rose slightly, to $313.8 million from $313.7 million in November. Cash flow (earnings before interest, taxes, depreciation and amortization) fell by nearly half to $48.2 million, compared to $80.5 million in November.

Adelphia spokeswoman Erica Stull said there were several reasons behind the cash-flow falloff.

Adelphia had about $10 million in additional expenses in December due to items in its restatement efforts. There were three more payroll days in December, also adding to expenses. And a changeover to a new company benefits program resulted in some additional one-time accruals.

In a report, UBS Warburg cable debt and equity analyst Aryeh Bourkoff called the December results mixed, but said Adelphia appears to be making progress in efforts to emerge from bankruptcy.

The Denver-based MSO has already upgraded 87% of its plant to 550-Megahertz, two-way capacity or better — it was 75% rebuilt earlier last year — and expects to have 95% of its plant upgraded by June of this year.

In its bankruptcy court filing, Adelphia said it completed the sale of some non-core assets on Jan. 7, raising about $1.3 million.

In his report, Bourkoff said that Adelphia could raise more cash through the sale of its interest in a radio station and a Venezuelan cable operation in the coming months.

RIGASES DEFENSE FUND

Adelphia said it has advanced about $8.6 million to the Rigas family — the founders of the MSO, who were indicted on federal fraud charges last year — for defense costs. The Rigases, who have proclaimed their innocence, are set to begin their federal trial on Feb. 23.

According to an Aug. 7, 2003, bankruptcy court order, Adelphia is required to allow the Rigases to be advanced up to $15 million for court costs from cable entities controlled by the family but managed by Adelphia — the so-called "Rigas Entities."

Bourkoff was encouraged by Adelphia's ability to boost its monthly average revenue per unit numbers in December to $62.29 from $62.12 in November, most likely the result of high-speed data subscriber growth.

According to Bourkoff, the increase implies a monthly ARPU of $61.56 in the fourth quarter of 2003, an increase of more than $10 over the $51.34 average in the same period of 2002. While Adelphia's ARPU still lags the cable sector by about $6.50 per month, Bourkoff wrote that the Denver-based MSO is expected to continue to close the gap in the upcoming months.

Adelphia stock, on a blistering run over the past month, finally came back to earth last week, as investors apparently began taking profits.

Adelphia shares had risen nearly six-fold between Dec. 24, and Jan. 20, topping out at $1.90 per share.

The stock began to lose most of that ground last week and was priced at 39 cents per share in morning trading Jan. 29.

Two Months at Adelphia
December November
Source: Company reports
Basic Subscribers 5,469,784 5,434,519
Digital Subscribers 1,952,176 1,959,080
High-Speed Data Subscribers 1,016,264 982,611
Revenue $313,845,000 $313,674,000
EBITDA $48,220,000 $80,526,000

September