Adelphia Communications Corp., the bankrupt cable television company whose former leaders are on trial for fraud, on Wednesday said it set $8.8 billion in new financing — the largest ever for a bankrupt company -- as part of a plan to emerge from bankruptcy later this year.
Adelphia, which submitted the reorganization plan to the U.S. Bankruptcy Court for the Southern District of New York, said its proposal includes a variety of distributions in cash, preferred shares and common stock as well as interests in a litigation trust for its various creditors, shareholders and litigants.
Adelphia said the $8.8 billion exit financing was led by J.P. Morgan Chase & Co., Citigroup Inc., Credit Suisse First Boston and Deutsche Bank.
“This reflects a high degree of confidence in the company’s future and allows us to emerge with a strong balance sheet,” said Vanessa Wittman, chief financial officer, on a conference call to reporters.
The Rigas family, the company founders whose fraud trial began earlier this week, will receive no payments from their equity stakes and other claims, said Adelphia, the No. 5 U.S. cable operator with more than 5 million customers in 30 states and Puerto Rico.
The plan’s filing is expected to touch off battle between Adelphia’s new management, appointed after the Rigas family resigned amid fraud charges, and Adelphia’s shareholders, who charge that the plan will enrich creditors and bondholders at their expense.
The plan provides slim prospects for recovery for shareholders, allowing them to participate in a litigation trust to pursue claims against the Rigas family, Adelphia’s former auditor Deloitte & Touche, and the financial institutions that lent money to the company and the family. Such litigation is expected to go on for years.
Adelphia founder John Rigas, his sons Timothy and Michael, and Adelphia’s former director of internal reporting, Michael Mulcahey, are on trial in U.S. District Court in Manhattan on charges they stole millions from the company by taking out co-borrowing loans for personal business and to cover margin calls on Adelphia stock.
The proposed reorganization plan values Adelphia at $17 billion, compared with about $23 billion estimated by the shareholders, who have asked the court for permission to file their own plan that would sell the company.
Chief Executive William Schleyer said its valuation was based on estimates complied by its investment banking adviser Lazard, based on comparable public market valuations and other measurements. He declined further comment on the valuation, citing pending litigation with shareholders.
Adelphia’s court-appointed equity committee, in a statement, denounced the plan, saying management “continues to grossly undervalue” the enterprise and that a sale would allow the company “to make a multi-billion dollar distribution to existing shareholders.”
The current management has said they plan to operate Adelphia as a stand-alone company when it emerges from bankruptcy. A committee representing the equity holders has said it would like the company sold off to recover some of their investment.
Upon emergence from Chapter 11, Adelphia estimates it would have approximately $8 billion in debt and an additional $750 million revolving credit facility.
