Judge approves plan by Adelphia to pay creditors

Adelphia Communications Corp.’s plan to pay creditors and end one of the biggest bankruptcy cases in U.S. history was approved Wednesday by a federal judge in New York.

Adelphia, once the fifth-biggest U.S. cable television company, filed for protection from creditors in June 2002, a month before its founder, John J. Rigas, was arrested for looting the company.

In July, Adelphia sold substantially all of its cable operations to Comcast Corp. and Time Warner Inc. for $17.6 billion in cash and shares in Time Warner’s cable unit. Of that amount, $15 billion will be distributed to creditors in cash and Time Warner Cable shares. After winding down, Greenwood Village, Colo.-based Adelphia will cease to do business.

“The plan has secured the assent of over $10 billion in claims, representing approximately 84% of the claims in this case,” wrote U.S. Bankruptcy Judge Robert Gerber in a 267-page decision.

The judge, who said the plan faced “extremely bitter objections” from a minority of creditors, rejected the arguments of one group that will initially get only shares. Gerber said the “great bulk” of those objections didn’t have merit.

The plan was approved “after seven predecessor plans that made one creditor constituency or another -- and in some cases nearly everybody -- extremely unhappy,” Gerber wrote.

The plan is governed by a so-called true-up mechanism, which allows the market to set the value of the Time Warner Cable shares once the plan goes into effect.

According to Gerber’s decision, the value of the Time Warner Cable stock is $6.5 billion, which falls at the high end of a range of values presented by an Adelphia expert at hearings last month. The original plan assigned a deemed value of $5.4 billion to the shares.

The true-up mechanism allows for a 20% adjusted increase or decrease in the average weighted stock price based on market value during the first 60 days after the plan goes into effect.

“No dissenting creditor is receiving less than it would receive in the event of a liquidation of the debtor against whom that creditor has a claim,” Gerber wrote.

Gerber gave the parties one day to respond to the confirmation order.

David Friedman, lead attorney for the unsecured creditors, and Martin Bienenstock, the lead attorney for plan opponents, didn’t immediately comment.

“We are obviously very pleased. The long and difficult saga is nearing a successful conclusion,” said Marc Abrams, the lead bankruptcy attorney for the debtors.

“Although the judge himself said the plan is not a popularity contest, it did command overwhelming creditor support,” Abrams said, adding that he expected the plan opponents to appeal the confirmation order.

John Rigas and his son, Timothy Rigas, who was Adelphia’s finance chief, were convicted in July 2004 of conspiracy and securities fraud. John Rigas was sentenced to 15 years in federal prison, Timothy to 20. They are free pending the outcome of their appeals.

When the company filed for bankruptcy protection in 2002, it listed assets of $24.4 billion and liabilities of $18.6 billion.

BankruptcyData.com, a website that tracks bankruptcies, says the Adelphia bankruptcy is the 11th biggest in U.S. history by assets. That same year, WorldCom Inc., another company brought down by fraud, filed the largest bankruptcy, declaring more than $100 billion in assets.

In a separate opinion, Gerber said the bankruptcy reorganization plan properly canceled $567 million in bonds that Adelphia claimed the Rigases fraudulently purchased and then forfeited as part of an agreement with the U.S. government.