Adelphia's Bankruptcy Exit Plan Declared Effective

A federal judge declared Adelphia Communications Corp.'s bankruptcy plan to be effective, allowing the company to distribute $17 billion in stock and cash to thousands of creditors.

The judge had stayed implementation of the plan Jan. 24, ordering a group of Adelphia noteholders to post a $1.3 billion bond while she considered its objections to the plan. The group lost its appeal of the bond requirement Feb. 9 and declined to post the bond at an emergency hearing in New York today.

``This plan is hereby effective,'' U.S. District Judge Shira Scheindlin said at the hearing.

Adelphia, once the fifth-biggest U.S. cable TV company, can now distribute to creditors shares in Time Warner Cable Inc. (TWC) that the company received in return for selling its assets to Time Warner Inc. (TWX) and Comcast Corp. (CMCSA) last year. The stock is worth about $6.7 billion.

The noteholders asked Scheindlin to require Greenwood Village, Colorado-based Adelphia to tell creditors they may have to return assets distributed to them if the noteholders prevail in their challenge to the plan. Scheindlin said there was no rush for her to decide the request for so-called disgorgement.

``Everyone should be advised that every distribution may have to be disgorged if we are successful on appeal,'' Martin Bienenstock, a lawyer for the noteholders, said in an interview.

During the hearing, Bienenstock, of New York's Weil, Gotshal & Manges, asked Scheindlin to consider alternatives to the $1.3 billion bond, including holding back some of the assets from the other creditors. She declined to do so.

Clients

Bienenstock also said his clients, which include Bank of America Corp.'s Banc of America Securities LLC and a unit of Lehman Brothers Holdings Inc., were willing to post a $10 million bond.

Scheindlin declined to accept that offer, saying she had expected the noteholders to suggest posting $100 million to $300 million.

Scheindlin's Jan. 24 delay postponed full trading in the Time Warner Cable shares. Bienenstock's clients, who hold $1.1 billion in Adelphia notes, object to the value the bankruptcy plan placed on those shares. Under the approved plan, the noteholders would receive $900 million. They stand to win as much as $250 million more if they prevail in their appeal.

The $1.3 billion bond would have been used to cover whatever damages other Adelphia creditors suffered because of the delay the appeal caused in implementing the plan.

IPO Expense

One expense, according to other creditors, would have been $700 million to pay for an initial public offering of the Time Warner Cable stock if the bankruptcy plan to distribute the shares wasn't allowed to move forward.

David Friedman of New York's Kasowitz, Benson, Torres & Friedman, a lawyer for Adelphia's unsecured creditors, argued against the relief Bienenstock asked for at the hearing today.

``Disgorgement, as your honor found in your opinion, is impossible,'' Friedman said, referring to her Jan. 24 decision.

Time Warner Cable shares began trading last month for $41 on a ``when issued'' basis in the over-the-counter market, pending the court's decision. They rose 4 cents to $41.29 at 1:03 p.m. New York time.

Shares of New York-based Time Warner, the world's largest media company, fell 6 cents to $21.22 at 1:19 p.m. New York time in New York Stock Exchange composite trading.

Time Warner spokesman Ed Adler and Adelphia spokesman Mark Spiecker declined to comment.

Adelphia filed for bankruptcy protection in June 2002 after the discovery of an accounting fraud at the company. Adelphia founder John Rigas was convicted of fraud in 2004 and sentenced to 15 years in prison. He is free during his appeal.

U.S. Bankruptcy Judge Robert E. Gerber in New York signed the order approving Adelphia's bankruptcy plan on Jan. 5. The noteholders then appealed that order.

The case is In re Adelphia Communications Corp., 02-41729, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Thom Weidlich in New York at tweidlich@bloomberg.net.

To contact the editor responsible for this story: Patrick Oster at poster@bloomberg.net.

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