Judge blocks Adelphia plan
A judge blocked Adelphia Communications Corp.’s $15-billion reorganization plan Wednesday, saying that bondholders had shown a “substantial possibility” that a Bankruptcy Court judge had made mistakes in approving it.
U.S. District Judge Shira Scheindlin said she would require bondholders challenging the plan to post $1.3 billion because a delay could cost the bankruptcy estate more than $1 billion in additional costs or “could even cause the plan to collapse.”
The bankruptcy case was filed in June 2002 after Adelphia, once the fifth-biggest U.S. cable television company, disclosed it had $2.3 billion in off-balance-sheet debt and $18.6 billion in total debt. Substantially all of its operations were sold to Time Warner Cable Inc. and Comcast Corp. in a deal approved July 31.
If confirmed, the proposed plan would distribute what is left of the Adelphia estate, worth about $15 billion, to bank lenders, creditors and bondholders and allow it to begin winding down its business.
Scheindlin said a stay was necessary because without one, it was “extremely unlikely” that the bondholders would ever receive meaningful appellate review of the Bankruptcy Court rulings, and, once set in motion, “the plan truly cannot be unraveled.”
Yet, the judge added, “a stay of a confirmation order in one of the longest-running and most complex bankruptcies in our history threatens grave harm to thousands of parties who have been waiting for more than four years to obtain sizable distributions from a group of bankrupt estates.”
Scheindlin said bondholders had shown “a substantial possibility that there was never a settlement agreed to by all authorized litigants” and thus the bankruptcy judge erred in approving it. She said “grueling negotiations” resulted in the plan, which was overwhelmingly approved by creditors and approved Jan. 3 by the Bankruptcy Court. Scheindlin said it probably would take at least until September for the appeal process to be completed.
In the federal court system, a District Court judge acts as an appellate court in reviewing final orders by the Bankruptcy Court. Scheindlin’s findings could then be appealed to the 2nd U.S. Circuit Court of Appeals.
Scheindlin said there was a “substantial possibility” that she might find the Bankruptcy Court made an error by confirming the plan without determining which assets were subject to the payment of various claims.
The judge said a study of the plan “would likely find” that the plan’s approval violates the constitutional right of the bondholders to a fair distribution of Adelphia’s assets.
Messages for comment left with Adelphia and the bondholders were not returned.
Founder John Rigas was convicted of fraud and sentenced to 15 years in prison. His son Timothy was sentenced to 20 years. They are free pending appeal.
