NEW YORK-
A group of Adelphia Communications Corp. bondholders asked a federal appeals court on Tuesday to set aside a requirement that they post a bond.
In a hearing before the 2nd Circuit Court of Appeals in Manhattan, Marin J. Bienenstock, a lawyer for the bondholders, argued that a district judge’s requirement last month that the 11 holders post a $1.3 billion bond to offset potential harm to Adelphia and its other creditors is too high.
Bienenstock said the high amount effectively blocks their ability to appeal a bankruptcy judge’s decision in early January confirming the plan and isn’t in the best business interest of those creditors, who hold about $1.1 billion of Adelphia’s bonds.
“Why can’t people with billions put up a bond of $1.3 billion?,” asked Circuit Judge Jon O. Newman.
“It’s not ‘can they.’ It’s ‘should they,'” Bienenstock said.
U.S. District Judge Shira Scheindlin granted their request for a stay pending appeal last month and required the bond to offset potential harm if the stay diminishes the value of the bankruptcy estate and they don’t prevail on appeal.
The bondholders group, which includes a Bank of America Corp. securities unit and several hedge funds, stand to get about 89 percent of their holdings back, or about $900,000, under the reorganization plan, Bienenstock said.
The circuit panel reserved decision on the bond issue and didn’t indicate when they might rule.
Only two members of the three-judge panel heard Tuesday’s arguments. U.S. District Judge George B. Daniels, who was sitting by designation, recused himself.
David M. Friedman, a lawyer for Adelphia’s official committee of unsecured creditors, argued that the bondholders group is unhappy with the deal they’re getting under the reorganization plan and is trying to stop its implementation.
“They’ve come to this court for a better deal,” Friedman said.
Friedman argued the majority of creditors support the plan and that the opposition group made “no serious attempt” to suggest a workable bond amount to Judge Schiendlin. Friedman said the group suggested a $10 million bond with “lots of strings attached.”
He said delaying the implementation of the reorganization plan could impact the amount creditors receive, depending in part on the valuation of Time Warner Cable Inc. stock.
Adelphia, the Greenwood Village, Colo., company received cash and Time Warner Cable stock as part of the sale of its cable properties last year to Time Warner Inc. and Comcast Corp. The stock will be used in part to compensate creditors and investors under the reorganization plan.
Adelphia entered Chapter 11 bankruptcy protection following a massive accounting fraud at the one-time telecommunications giant.
In 2004, Adelphia founder John Rigas and his son Timothy Rigas, the company’s one-time chief financial officer, were convicted of pocketing more than $2 billion from Adelphia for their own personal use and misleading investors about the company’s finances and performance. John Rigas has been sentenced to 15 years in prison, while Timothy Rigas was sentenced to 20 years. Both men are free on bail while their appeals are being heard.
Last March, Michael Rigas, another son and former Adelphia executive, was sentenced to 10 months of home confinement after admitting in 2005 that he filed a Form 13D with the Securities and Exchange Commission that falsely stated he had conducted an inquiry into the source of funds used for a purchase of Adelphia shares in late 1999. The certification was kept in Adelphia’s records.
Michael Rigas was acquitted in 2004 of conspiracy and wire fraud charges, but the jury deadlocked on charges of bank fraud and securities fraud. The bank fraud charges against him were later dismissed by prosecutors.
Adelphia itself agreed to pay $715 million in cash and stock to settle Justice Department and SEC charges stemming from an accounting scandal that plunged it into bankruptcy. Prosecutors have called it one of the most extensive financial frauds on record.
Last week, the Justice Department filed a brief with the appeals court asking that the reorganization plan be allowed to proceed, saying a stay pending appeal will delay the creation of a fund to compensate the company’s investors.
