Adelphia Submits Bankruptcy Filing

Adelphia Communications Corp., the nation’s sixth-largest cable provider and the leader in Southern California, filed for Chapter 11 bankruptcy protection late Tuesday, plagued by one of the biggest accounting scandals in corporate history.

The bankruptcy filing, one of the largest ever, had been expected for weeks, following the disclosure of $3 billion in off-the-books borrowings by Adelphia’s founding Rigas family.

Adelphia’s nearly 6 million customers nationwide--and 1.2 million in Southern California--are unlikely to see any immediate change in their television service. The company said late Tuesday that it would continue to operate as usual during bankruptcy proceedings, while working on a reorganization plan to restructure its debt and get back on track.

The company is expected to downsize and sell assets to reduce debts. Among the properties that could be sold are its prized local cable systems in communities such as Los Angeles, Beverly Hills, Pacific Palisades, Santa Monica, Brentwood and Redondo Beach and in Orange and Ventura counties.

Tuesday’s filing comes amid a flurry of accounting scandals on Wall Street. Federal regulators are investigating the bookkeeping practices of companies including Enron Corp., Adelphia and WorldCom Inc., which disclosed Tuesday that nearly $4 billion in expenses were improperly accounted for.

Adelphia’s bankruptcy filing also marks the speedy fall from grace of John Rigas, the folksy 77-year-old son of Greek immigrants who was known for his small-town charm and family values. Rigas pulled adult-oriented TV channels off cable systems in Los Angeles shortly after Adelphia purchased Southern California’s largest cable provider, Century Communications Corp., in late 1999.

Rigas founded Adelphia in 1952 with $300 and built it into a cable powerhouse from the hamlet of Coudersport, Pa. During the go-go cable merger madness of the late 1990s, when cable values peaked and many industry pioneers became billionaires by selling out, Rigas told cable cronies that he would not sell because his three sons were eager to take over the company.

Last month Rigas and his sons were forced to relinquish control of the company in the face of federal probes, two state grand jury investigations, scores of shareholder lawsuits and a cash crisis that has reduced the value of Adelphia’s stock by 99%. On Tuesday, Adelphia’s shares traded at 14 cents in the over-the-counter market.

The company was delisted from Nasdaq this month for failing to file its 2001 annual report. Adelphia admitted that it inflated revenue and earnings and misled investors by claiming an additional 47,000 subscribers.

Under Adelphia’s interim Chief Executive Erland Kailbourne, the company fired auditor Deloitte & Touche because of potential conflicts of interest resulting from its audit of both the public company and the Rigas family partnerships.

In a statement Tuesday, Kailbourne said the bankruptcy filing was the company’s best chance for survival: “The action was taken to stabilize Adelphia’s financial foundation and to continue quality service to our customers.... Entering into these proceedings will enable us to fully evaluate our enterprise without the immediate pressure to sell valuable assets that may well benefit the company in the future.”

In an effort to stave off a bankruptcy filing, in recent weeks Kailbourne had put up for sale cable systems serving 3 million customers. But potential suitors, including cable mogul Paul Allen, shied away because of the uncertain liabilities they would face in such a deal.

Sources say the filing took longer than expected because Adelphia had difficulties pulling together the financing it needed to operate in Chapter 11. On Tuesday, the company announced that J.P. Morgan Chase Bank and Citigroup USA had agreed to provide $1.5 billion to cover operating costs.

Adelphia said the money would enable the company to continue paying employees, city franchise authorities and program suppliers and to upgrade its networks with digital technologies.

But experts say customers could experience lapses in service as a result of Adelphia’s reorganization.

“You could see some delays and interruptions in service if Adelphia downsizes, stops hiring, or if its employees get nervous and start leaving,” said Ivan Kallick, a bankruptcy lawyer at Manatt, Phelps & Phillips who is an Adelphia customer. “But you won’t be watching Tom Brokaw and suddenly have your cable go out.”

Los Angeles officials also fear that the bankruptcy filing could further delay Adelphia’s transition to digital TV.

The city also is concerned that Adelphia will miss a payment due Sunday of about $1.7 million for cable franchise fees. Cable operators pay the city 5% of their revenues every quarter for the right to offer service. Given the local budget crisis, city officials say they can ill afford delinquencies.

Few cable companies have ever filed for bankruptcy. Though start-ups such as Colorado-based Winfirst, which was awarded a local cable franchise, have run out of money trying to duplicate existing cable networks, most established cable operators are cash cows because they enjoy a monopoly in their markets.

Adelphia had one of the highest debt levels in the cable industry after an acquisition spree in the late ‘90s. Adelphia’s sizable debt made it vulnerable when accounting irregularities were first disclosed in late March.

Since then, Adelphia has revealed numerous examples of possible self-dealings by the Rigases, including a $150-million loan from Adelphia to the family’s professional hockey team, the Buffalo Sabres. The family also was building a world-class golf course on the outskirts of Coudersport. Several million dollars in Adelphia funds also helped pay for a movie produced by Rigas’ daughter.