A group of Adelphia Communications Corp. noteholders shouldn't have to post a $1.3 billion bond while a judge considers objections to the company's bankruptcy exit plan, the group's lawyer told a federal appeals court.
The holders of $1.1 billion in Adelphia notes won a stay of the bankruptcy plan on Jan. 24 from a federal district judge, who said they stood to get $250 million if they prevailed and ordered them to post the bond within three days. The next day, an appeals judge suspended the bond requirement until a panel of judges could hear arguments on the issue.
``To get a $250 million upside, they're being told to invest and put at risk $1.3 billion,'' Martin Bienenstock, a lawyer for the noteholders, told the two-judge panel today in New York. ``There's too much that's not in our clients' control to risk $1.3 billion.''
The noteholders object to the value placed on the shares in Time Warner Cable Inc. (TWC:US) that Adelphia received when it sold its assets to Time Warner Inc. (TWX:US) and Comcast Corp. (CMCSA:US) last year. The Jan. 24 delay imposed by U.S. District Judge Shira Scheindlin of New York postponed full trading in the Time Warner Cable shares, which creditors will get as part of their payout from Adelphia, once the fifth-biggest U.S. cable TV company.
The judges didn't rule today on the bond question. If the noteholders lose their appeal of Adelphia's bankruptcy plan, the bond would be used to cover whatever damages other Adelphia creditors suffered because of the delay in implementing the plan.
Bienenstock, of New York's Weil, Gotshal & Manges, told appeals court judges Robert D. Sack and Jon O. Newman that Adelphia and those of its creditors that approve of the plan are trying to prevent the noteholders from appealing by calling for an unreasonable bond.
He argued that it's unfair for his 11 clients, which include Bank of America Corp. subsidiary Banc of America Securities LLC and a unit of Lehman Brothers Holdings Inc., to have to indemnify the thousands of other creditors in the case.
David M. Friedman, an attorney for Adelphia's unsecured creditors, argued that the bond is needed to cover costs, including $700 million in underwriting expenses for a public offering of the cable stock if the plan delay prevents the shares from being distributed to creditors.
``These are not a few creditors carrying the water for everyone else,'' said Friedman, of New York's Kasowitz, Benson, Torres & Friedman. ``These are 11 creditors carrying the water for themselves and themselves alone.''
It wasn't the business of the court to give banks and hedge funds better returns on their investments, Friedman said.
``They've come to this court for a better deal,'' he said.
Newman said the crucial question is whether imposing a large bond pending appeal amounts to denying a stay of the plan. Sack said the court would keep in place the temporary stay on the bond requirement until he and Newman rule. A third judge who was scheduled to hear the case recused himself, Sack said.
Bienenstock said his substantive brief on the appeal of the bankruptcy plan is due tomorrow.
In freezing Adelphia's plan while she considers the appeal, Scheindlin had said the noteholders didn't show a substantial possibility of success on their challenge to the cable stock valuation. She said they may succeed on other issues, such as the possibility that the bankruptcy judge permitted an invalid settlement among creditors to be included in the plan.
Adelphia, based in Greenwood Village, Colorado, 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.
The Time Warner Cable shares were to begin trading officially Jan. 22 on the New York Stock Exchange. They began trading earlier this month for $41 on a ``when issued'' basis in the over-the-counter market, pending the court's decision. The stock fell 40 cents to $42.10 at 3:48 p.m. New York time.
Shares of New York-based Time Warner Inc., the world's largest media company, rose 6 cents to $21.61 today in New York Stock Exchange composite trading.
The case is In re Adelphia Communications Corp., 02-41729, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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