Odds Get Longer for Adelphia Holders - TheStreet

Memo to

Adelphia Communications


shareholders: Don't hold your breath.

With the debt-laden cable TV system operator throwing off bad news on a daily basis, the chance of equityholders in the troubled company getting value for their shares on a timely basis -- or any basis -- is seeming ever more remote.

As the possibility grows that Adelphia will file for protection from creditors under Chapter 11 of the bankruptcy code -- the company last week skipped $44.7 million in debt and preferred stock payments, and over the weekend announced the resignation of its vice president of finance, an 18-year Adelphia veteran -- attorneys experienced in bankruptcy and restructuring say the precedents aren't good for a quick and happy resolution.

Adelphia's shares closed at $5.70 last Tuesday, after which the Nasdaq suspended trading pending further information from the company. The stock has already lost more than two-thirds of its value since Adelphia blindsided Wall Street in March by disclosing $2.3 billion in potential liabilities that the company hadn't put on its balance sheet.

One complication is the company's disclosure that grand juries in Pennsylvania and New York are investigating "certain matters" related to Adelphia's business. Adelphia has already said it is subject of a

Securities and Exchange Commission

investigation of its accounting, but the prospect of attorneys general getting involved always ratchets up the risk in cases like these, observers say.

"As a general matter, there's no question that the prospect of criminal inquiry makes a restructuring a more difficult proposition," says James H.M. Sprayregen, head of the bankruptcy and insolvency practice at Kirkland & Ellis. Such an inquiry, suggests Sprayregen, makes parties involved in the situation less willing to be forthcoming with information that might be helpful with restructuring, out of concern over potential liabilities raised by the disclosures. "The essence of quick and constructive restructuring," says Sprayregen, "is often transparency of information."

Though Sprayregen says he doesn't know what such inquiries might mean for Adelphia's equity value, he says that the history of the impact of such investigations "is not a positive one."

Separately, Sprayregen points out that were Adelphia to file for bankruptcy protection, shareholders filing suit against the company would lose a measure of their ability to recover money from it. According to the U.S. Bankruptcy Code, he says, shareholder-level claims fall to the level of other equity claims, meaning they stand in line behind a company's creditors for compensation. That's in contrast to a nonbankruptcy situation, says Sprayregen, in which shareholder claims are on par with those of unsecured creditors.

Howard Kaplan, chair of the corporate restructuring group at the law firm Gardner Carton & Douglas, says that while a bankruptcy might make it harder for a litigant to collect money from a company, it leaves open the possibility that people could collect money from related sources, such as directors, officers, and professionals advising the company. "There might be less available in bankruptcy per se," says Kaplan, "but there might be other sources to be looked at outside the bankruptcy."