Cablevision's Credibility Gap Grows

Updated from 2:48 p.m.

Wall Street's doing some serious wondering about the wild and wooly Dolans atop Cablevision (CVC Quote - Cramer on CVC - Stock Picks).

The company's disclosure of a violation in its loan agreements has turned the spotlight on a $266 million transaction benefiting the family led by Chairman Charles Dolan and his CEO son James.

The Bethpage, N.Y., cable shop said Monday that it had to cancel a planned $3 billion dividend and a $1 billion financing deal after finding it had breached a promise to bankers. With their 20% stake in the company, the Dolans would have pocketed about $600 million in the dividend payout.

On a conference call with analysts Monday, Cablevision executives attributed the violation to a "technical" error and said it wasn't related to "any underlying financial weakness." To show how minor the violation was, the company pointed to a misstatement of an $18 million loan from a supplier.

But to seasoned observers who have watched the company stumble at nearly every turn this year, the explanation came up short.

"The company disclosed one technical covenant breach that appears so small that it raised myriad questions among investors as to why the special dividend was canceled rather than just postponed," says Creditsights analyst Jake Newman in a report Tuesday.

"It doesn't make any sense," said one New York hedge fund manager. "You don't cancel a $3 billion dividend over an $18 million accounting error."

The company says it takes the violation seriously and is looking for other possible breaches. But skeptics say they are inclined to believe there is something more behind this latest blunder.

Which is why a big personal loan to the Dolan family has been the center of speculation this week.

In February 2000, the Dolan family trust received $266 million from Bear Stearns in a so-called forward purchase agreement covering 7.98 million shares of Cablevision. The agreement requires the Dolan family trust to provide the shares in three installments.

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