Adelphia court asked to limit payout

Unsecured creditors seek to stop banks from getting $300 million

August 13, 2002|By NEW YORK TIMES NEWS SERVICE

Lawyers for a group of bondholders and other creditors of Adelphia Communications asked a bankruptcy court yesterday to restrict payments of several hundred million dollars promised to Adelphia's banks.

In a filing late yesterday, lawyers for the unsecured creditors said the banks should not receive $300 million in interest payments promised in connection with a proposed $1.5 billion debtor-in-possession financing.

Under debtor-in-possession financing, the lenders who provide the money for continuing operations are first in line among creditors with claims on the company's assets. The $300 million would compensate the earlier lenders for being pushed from the front of the line, because lenders providing interim financing must be repaid first.

Such payments, known as adequate protection, are common in debtor-in-possession financings, said David M. Friedman, a partner with Kasowitz, Benson, Torres & Friedman, which represents the unsecured creditors.

In the filing, the lawyers said that the banks bore some responsibility for nearly $3 billion in loans that the Rigas family, which controlled Adelphia, borrowed. The loans were guaranteed by Adelphia but were not disclosed on its books.

The $300 million in interest payments, Friedman said, would be paid to banks that made the loans to Adelphia and to the Rigases.

The family ended up using more than two-thirds of the money, he said.

"The majority of Adelphia's secured bank loans were in reality made to the Rigas family," Friedman said, "and the banks appear to be the only entities other than the Rigases and their accountants in a position to know that Adelphia's books were grossly inaccurate. Based on these highly unusual facts, any payments to these banks is inappropriate."

The $1.5 billion in debtor-in-possession is being arranged by J.P. Morgan Chase and Citigroup, which are arranging the $1.5 billion in financing.

Among the banks that led financings that were partly used by the Rigas family are Bank of America, Wachovia, J.P. Morgan Chase and Bank of Montreal.

A spokeswoman for Wachovia, Mary Eshet, said the bank did not comment on customer relationships.

A spokesman for J.P. Morgan, Adam Castellani, also declined to comment. A spokeswoman for Bank of America, Eloise Hale, had no comment, and a representative of the Bank of Montreal could not be reached.

A hearing to complete the debtor-in-possession financing is scheduled for Aug. 22, Friedman said.

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