NEW YORK — Adelphia Communications Corp. received the Bankruptcy Court's approval Thursday to borrow up to $1.5 billion in new financing while it tries to restructure.
The debtor-in-possession financing, led by J.P. Morgan Chase & Co. and Citigroup Inc., represents the second-largest DIP loan ever, trailing Kmart Corp.'s $2-billion facility this year.
Judge Robert Gerber said at the outset of his ruling that the DIP facility, aimed at sustaining Adelphia's cable business, also is "one of the most complex" such loans ever formed because of Adelphia's capital structure.
Gerber approved the post-bankruptcy financing package--secured by Adelphia's subscriber value--after a seven-hour hearing, during which its creditors and shareholders voiced their objections to certain terms under the DIP agreement while its bank lenders argued for the necessity of adequate protection of their interests.
One key controversial component of the DIP pact requires Adelphia to pay $300 million in interest to its banks for the $4.6-billion loan withdrawn by Adelphia as of the end of April.
Its creditors objected to the payment to the lenders--including Bank of America Corp., Bank of Montreal, Wachovia Corp., and J.P. Morgan Chase--as they believe those banks were partly to blame for the $3.1 billion borrowed by Adelphia's founding Rigas family but allegedly hidden from the company's books. By that account, only $1.5 billion of the loan was used by the company itself.
The revelations of related-party transactions involving the Rigas family effectively cut off Adelphia's access to further financing, which, coupled with massive debt, ultimately pushed the Coudersport, Pa., company into bankruptcy protection in June.