Optimism on Adelphia Gives Its Bonds a Boost

Takeover speculation and optimism that cable company Adelphia Communications Corp. will emerge from bankruptcy protection by midyear are giving a fresh boost to the company’s bonds, already one of the strongest-performing issues in the distressed-debt market.

Battered in 2002 by revelations of off-balance-sheet financing deals by the Rigas family, which founded the company, Adelphia’s bonds have staged a comeback as the company cut costs under new management and as a torrent of cash flowed into the distressed-debt market, lifting prices on bonds of all kinds.

Talk that Adelphia could be a takeover target of Time Warner Inc. or some other large cable operator after it exits bankruptcy has most recently ignited interest in its bonds, strategists said.

Time Warner Cable Chairman and Chief Executive Glenn Britt told investors in December that the company would seek to expand in 2004 to gain negotiating leverage in dealings with programmers.

“The second half of 2004 could see Adelphia as a target for an acquisition,” said UBS analyst Aryeh Bourkoff. Time Warner, Comcast Corp. and Cox Communications Inc. are potential buyers of at least a portion of Adelphia’s assets, he said.

Bourkoff has a “buy” recommendation on Adelphia’s bonds, believing that investors could ultimately recover par value. He does not own Adelphia bonds, and UBS does not have a banking relationship with the company.

Adelphia’s bonds were the hottest-performing asset in the cable and satellite television sector last year, posting a 147% gain, according to UBS. They surged 10 points over the last three weeks alone after some of the nation’s biggest cable operators said they would consider merging in 2004.

Company spokesman Paul Jacobson said that Adelphia was strengthening its balance sheet so that it could operate independently when it emerged from bankruptcy but that it would consider merger offers.

Adelphia’s 9.875% notes due in 2007 were bid at 95.5 cents on the dollar Monday, up from 85.5 cents in mid-December. Some of its bonds had traded as low as 38 cents at the end of 2002.

Adelphia, the fifth-largest U.S. cable company, filed for protection from its creditors in June 2002 after founder John Rigas and his family members were charged with securities, wire and bank fraud.

With about 5.5 million subscribers, Adelphia would represent the largest block of cable assets on the market since AT&T;’s cable system was acquired by Comcast in November 2002, Bourkoff said.

Adelphia’s bonds hardly looked like a buy a year and a half ago. Worried about criminal investigations, lawsuits and Adelphia’s billions of dollars in debt, bondholders had braced for a long and costly bankruptcy process.

The fact that the company is exiting bankruptcy protection relatively soon has underpinned sentiment, said Barbara Cappaert, analyst at research firm KDP Investment Advisors.

Still, Cappaert said she had a “hold” recommendation on Adelphia’s bonds, thinking the best of the price run probably was over.