Things are bad at

Adelphia Communications

(ADLAE)

. But they're not

that

bad.

So argues a CPA and former media investment banker who, like the rest of the investing public, is waiting for the troubled cable TV operator to release its overdue financial report for the year ended Dec. 31, 2001.

Following Adelphia's disclosure of potential off balance sheet liabilities, shares in the cable operator have tumbled some 70% during the past month, fed by investor concerns about newly disclosed risks and possible undisclosed ones. Since the original revelation March 27 of $2.3 billion in possible liabilities, the company has missed two deadlines for filing last year's annual report, confirmed the existence of a formal inquiry into its "co-borrowing arrangements" and announced it faces delisting from the

Nasdaq

. Adelphia dropped 15 cents Monday, to $5.85, putting it down 81% for the year.

And with Adelphia and the Rigas family that controls it not talking -- except for the occasional, terse press releases relaying further bad news -- the information vacuum has been filled by rumors of accounting clashes, loose talk of asset sales and dismissals of Adelphia as an

Enron

-esque accounting disaster.

Into the Breach

Into this wasteland ventures at least one risk-taking soul: a former media and mergers-and-acquisitions investment banker, speaking on condition of anonymity. Saying he bought Adelphia's shares at $8, the banker says investors have let the alternating bad news and silence distract them from properly valuing Adelphia's

net asset value -- about $15 a share, or more than two and a half times Monday's closing price.

It's important to remember, says the banker, that while cable isn't a simple business, it has harder assets at its core than does Enron, whose intrinsic value seemed to vaporize as its accounting troubles snowballed.

"At the end of the day, you've still got 6 million cable subs paying their bills," says the banker. "So in my mind, you have an asset that isn't going to go away, no matter what happens with the family and the

SEC

and all that stuff.

"Even in a reasonable worst-case scenario, Adelphia is extremely oversold," adds the banker. "Maybe there's some enormous undisclosed liability, but I don't see any evidence of that, other than what they've already told us."

Value Hunting

To get a sense of the value in Adelphia, let's start with the co-borrowing arrangements that Adelphia has with what it calls "managed entities": properties managed by Adelphia but owned by the Rigas family.

Wall Street had long known of the arrangements, under which Adelphia and the managed entities can separately borrow money, and both are on the hook for money borrowed by either. But the nasty surprise disclosed by Adelphia on March 27 was that the managed entities had borrowed $2.3 billion (as of Dec. 31) under the arrangement -- an amount far more than investors had expected, and one for which Adelphia would be responsible if the managed entities couldn't repay. Worrying investors further, Adelphia hasn't disclosed details to corroborate its assertion that the managed entities won't have to dip into Adelphia's pockets to pay off their debt. Nor have the parties fully explained what assets at the managed entities collateralize the loan.

So let's run through the banker's numbers -- based in part on numbers circulated by sell-side analysts covering Adelphia -- on the managed entities and Adelphia's other assets and liabilities.

First off, the co-borrowings by the managed entities appear to have grown from the $2.3 billion Adelphia disclosed to $2.9 billion, owing to a 2002 purchase by the Rigases of more Adelphia stock, presumed by Wall Street to be made with co-borrowed money.

What assets back that up? More than 300,000 cable subscribers, as the Rigases confirmed in March, plus unspecified further assets, believed to be Adelphia securities. Value the subscribers at $3,700 apiece, or $1.1 billion total, and the securities at $900 million (we're skipping over the itemization of those securities) and you get managed-entities assets of $2 billion, and thus a net potential liability of $900 million at the entities.

Then there's Adelphia's exposure to

Adelphia Business Solutions

(ABIZQ)

, the telco spun off from Adelphia that filed for bankruptcy protection not long afterward. Add $540 million in ABIZ-related debt to the managed entities' liability, says the banker, and you get $1.4 billion in combined exposure.

Now, on to Adelphia itself. Valuing the company's 5.8 million subscribers by different techniques -- the $3,700-per-subscriber rule of thumb, combined with comparisons to market prices of

Charter Communications

(CHTR) - Get Report

,

Cox Communications

(COX)

and

Cablevision

(CVC)

-- you get an asset value of $20.8 billion. From that you subtract $13.3 billion in debt as of Dec. 31, and $1.6 billion in preferred stock. Then you add back $2.3 billion in cash -- most raised earlier this year -- and the estimated value of miscellaneous noncable assets. Subtract out the aforementioned $1.4 billion in managed entities/ABIZ exposure, and you get a grand total of $6.9 billion in value to the equity holders.

'Impatience'

Figuring out the per-share equivalent isn't a straightforward process, given the company's busy stock issuance. But ignoring convertible securities unlikely to be converted into stock, the banker ends up with about 259 million shares, or a little more than $26.60 a share.

Now, the banker's worst-case scenario isn't quite the worst-case scenario. The cable assets at Adelphia and the managed entities could be worth less than the banker hypothesizes, given industry trends such as rising programming costs and competition from satellite services. The securities held by the managed entities may be worth less than the banker supposes, or worth nothing at all. Altering the banker's scenario to make it a worst-worst-case analysis, one ends up with an asset value of $2.28 billion. By that calculation, Adelphia's guts are worth $8.80 per share -- an insurance policy, if not a bargain.

So investors are left to wonder how to invest in a vacuum -- whether there's more bad news to come out from silent Adelphia, or whether they're just waiting for Adelphia to clean up the one it's already created. The banker is confident, of course: "I think a lot of the stock-price movement is just impatience."