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Prepared By: Group 56

Name Roll
Serial No.
01. Israt Jahan Ananna 20-306

02. Mohammad Hossain 20-373

03. Nayeem-Ul Islam Chowdhury 20-539

 Case 16
Adelphia Communications Corp.’s
Bankruptcy
 Company Profile

 The company incorporated in 1972 under the name “Adelphia,” from the Greek word for
“brothers.” The little group of five small-town cable systems grew slowly but steadily through the
1970s, but things changed once Rigas’s three sons, Michael, Tim, and James, joined the company in
the early 1980s.
 In 1985, Adelphia more than doubled its subscriber base to 122,500 by acquiring a cable system in
Ocean County, NJ. The following year, Tim and James persuaded their father to take the company
public.
 Adelphia went public with a dual-class structure that gave its founding family effective control of
the company and the board of directors.
 In 1996, Adelphia’s subscriber base exceeded one million for the first time, but the really fast
growth was yet to come.
 In 1999, at the height of the boom, Adelphia made three large cable-system acquisitions in a single
month
 Analysis of the Economy

 In USA Cable television started in the late 1940s, soon after television (TV) broadcasting
itself began growing into a mass market.
 In the mid-1960s, regulatory hurdles imposed by the Federal Communications
Commission (FCC) in response to pressures from movie theater owners and TV
broadcasters, the cable industry’s growth accelerated.
 In 1975, over three thousand cable TV franchises had been awarded across the country. In
the 1990s, further deregulation permitted cable operators and telephone companies to
enter each other’s businesses and offer bundled services to their customers.
 The economy of US growing at 3% which play role in cable cand television industry.
 Deregulations increased competition from direct broadcast satellites (DBS) and other
technological innovations such as the internet, fiber optics, and wireless communications,
drove further consolidation in the cable industry
Analysis of the Industry
Porter’s 5 Forces

Threat of new
entrants
High

Bargaining Rivalry among

power of existing
suppliers competitor
Low High

Bargaining Threat of
power of buyers substitute
products
High
Moderate
 Analysis of the Industry
PESTEL Analysis

• Government supports, international trade agreements,

Political political stability.

• Adelphia Communications can use country’s economic

factor such as growth rate, inflation & industry’s
Economic economic indicators such as cable and television industry
growth rate, consumer spending etc to forecast the growth

• Adelphia Communications will understand the customers

of a given market and how they design the marketing
Social message for cable communication and television industry
consumers.
• Better understand the way of doing business
 PESTEL Analysis

• Adelphia Communications must has to cop up with

and keep fast in technological changes and increase
Technological social media involvement.
• Latest technology based innovations implemented by
competitors of Adelphia Communications

• Regular scrutiny by environmental agencies.

Environmental • Adelphia communications should carefully evaluate
the environmental standards that are required to
operate in those markets.

• Intellectual property is the fundamental element to any

Legal technological business and must be cared for and
protected to the entire extent to secure the fact that the
business does not lose out to rivals.
 Analysis of the Company:
Strengths SWOT Analysis Weaknesses
 High product quality increases brand loyalty and improves
Adelphia Communications Corp.  Weak financial position
 Difficult for competitors to imitate.
 Aggressive capital structure
 Strong online presence
 The poor customer service

Opportunities Threats
 Accelerated technological innovations and advances
 Opportunities in Online Space  Competitors catching up with the
 Customer preferences are fast changing product development
 The emergence of new market segments  The changing regulatory framework
and introduction of new stricter
regulations
 High Debt Portion in capital
structure
 Analysis of Adelphia Communications Corp:
Ratio Analysis
Liquidity Ratios 2001 2002 2003 2004
Current ratio 0.02 0.66 0.52 0.29
Cash ratio 0.01 0.3 0.25 0.18
Profitability Ratios 2001 2002 2003 2004
Gross Profit Margin 97.0% 103.1%
Operating Profit Margin -159.6% -145.3% -4.16% -3.98%
Leverage Ratios 2001 2002 2003 2004
Long term debt ratio 1.085 0.054 0.077 0.145
Interest Coverage Ratio 4.14 6.26
Leverage Ratios 2001 2002 2003 2004
Long term debt ratio 1.085 0.054 0.077 0.145
Interest Coverage Ratio 4.14 6.26
 Analysis of Adelphia Communications Corp: Ratio
Analysis
Liquidity Ratio Profitability Ratio

0.660882532
0.969624636 1.030901431
0.523868837

2001 2002 -0.041605013

2003 -0.039823449
2004
0.303165458 0.285988591
0.248781991
0.177995246 -1.452842733
-1.596280131
0.023313296
0.00639407

2001 2002 2003 2004

Current ratio Cash ratio Gross Profit Margin Operating Profit Margin
Analysis of Adelphia Communications Corp: Ratio
Analysis
 Du-Pont Analysis

Particulars 2001 2002 2003 2004

Net Profit Margin -1.8395 -2.1995 -0.2333 -0.4612
Total Asset Turnover 0.1899062 0.240285 0.270447 0.316333
ROA -0.349335 -0.5285 -0.06309 -0.14589
Financial Leverage -5.6688 -2.1646 -1.8653 -1.5943
ROE 1.9802948 1.143978 0.117689 0.232584
 Risk Analysis
Business Risk (Adelphia Communications Corp)
Revenue Variability
Particulars 2001 2002 2003 2004
Revenue 3,325,063 3,268,457 3,569,017 4,143,388
Mean Revenue 3,576,481
Standerd deviation of Revenue 399804
Revenue Variability (CV) 11.18%
Variability in EBIT
Particulars 2001 2002 2003 2004
Income before income taxes and - -
interest 5,307,732 4,748,554 -148,489 -165,004
Mean EBIT -2592444.75
Standerd deviation of EBIT 2821759.51
Variability in EBIT (CV) -108.85%
Degree Of Operating Leverage
Year 2001 2002 2003 2004
- -
EBIT 5,307,732 4,748,554 -148,489 -165,004
- -
Change of EBIT 0.1053516 0.96872964 0.1112204
Revenue 3,325,063 3,268,457 3,569,017 4,143,388
Change of Revenue -0.02 0.09 0.16
Operating leverage 6.19 -10.53 0.69
Average -1.21834
 Risk Analysis
Financial Risk (Adelphia Communications Corp)
Degree Of Financial Leverage
Year 2001 2002 2003 2004
- -
EBITDA 3,878,186 3,595,447 860,447 956,518
- - -
EBT 6,287,809 7,112,208 -715,234 1,913,716
Degree of Financial Leverage 0.62 0.51 (1.20) (0.50)
Average (0.15)
Interest coverage ratio
Year 2001 2002 2003 2004
- -
EBIT 5,307,732 4,748,554 -148,489 -165,004
-
Interest 1,268,466 -748,136 -381,622 -402,627
Interest coverage ratio 4.184371 6.3471802 0.38909969 0.4098185
 Risk Analysis
Business Risk (Adelphia and Time Warner)
Revenue Variability
Particulars 2005 2006 2007 2008
Revenue 12,031 13,669 15,307 17,141
Mean Revenue 14,537
Standerd deviation of Revenue 2192
Revenue Variability (CV) 15.08%
Variability in EBIT
Particulars 2005 2006 2007 2008
Income before income taxes and interest 2,021 2,168 2,828 2,880
Mean EBIT 2474.39
Standerd deviation of EBIT 442.97
Variability in EBIT (CV) 17.90%
Degree Of Operating Leverage
Year 2005 2006 2007 2008
EBIT 2,021 2,168 2,828 2,880
Change of EBIT 0.07249 0.304428 0.018
Revenue 12,031 13,669 15,307 17,141
Change of Revenue 0.14 0.12 0.12
Operating leverage 0.53 2.54 0.15
Average 1.076
 Risk Analysis
Financial Risk (Adelphia and Time Warner)
Degree Of Financial Leverage
Year 2005 2006 2007 2008
EBITDA -252 -509 41 -359
EBT 1,312 1,292 1,957 1,970
Degree of Financial Leverage (0.19) (0.39) 0.02 (0.18)
Average (0.19)
Interest coverage ratio
Year 2005 2006 2007 2008
EBIT 2,021 2,168 2,828 2,880
Interest 705 868 821 900
Interest coverage ratio 2.8688 2.4977 3.44458 3.2
Financial Distress cost ( Adelphia Communications)

2005 2006 2007 2008

Z Score -5.154115772 -5.154115775 -5.154115772 -5.154115774
Average -5.154115773
Distress Zone Distress Zone Distress Zone Distress Zone
Probability of Z score 0.40%
 Financial Distress cost ( Adelphia Communications
and Time Warner)

2005 2006 2007 2008

1.1339054 1.2251482 1.4598626 1.6646877

Z Score 76 16 69 4

1.3709010
Average 25

Distress Distress Distress Distress

Zone Zone Zone Zone

Probability of Z score 0.45%

Now presenting..

Nayeem-Ul Islam Chowdhury

ID: 20-539
 Problem Statement

Adelphia Communications Corporation, one of the largest cable

companies of USA, would have to decide either to opt for liquidation
or to sell its assets according to the chapter 11 of US Bankruptcy
Code, which may creditors believe would produce higher recoveries
on their claims that were originated due to the massive accounting
fraud in June, 2002.

Should the company go for liquidation or going

concern? If it goes for later option, what will be
the structure?
 Private Placement of
Liquidation Equity

Optimum Debt-
Alternative Equity
Courses of Action
Stand Alone
Debt-Equity Swap

TWC
Bidding Process

Others
 WACC Calculation

Private Placement of Equity Optimum Debt-Equity SWAP TWC- Combined

WEIGHTED AVERAGE COST OF CAPITAL WEIGHTED AVERAGE COST OF CAPITAL WEIGHTED AVERAGE COST OF CAPITAL WEIGHTED AVERAGE COST OF CAPITAL
Cost of Debt 10.000% Cost of Debt 10.000% Cost of Debt 5.000% Cost of Debt 7.000%
Business Risk Premium 4% Business Risk Premium 4% Business Risk Premium 3% Business Risk Premium 4%
Financial Risk Premium 3% Financial Risk Premium 3% Financial Risk Premium 3% Financial Risk Premium 3%
After tax cost of debt 8% After tax cost of debt 8% After tax cost of debt 4% After tax cost of debt 4%
Cost of Equity 17.00% Cost of Equity 17.00% Cost of Equity 11.00% Cost of Equity 14.00%
Weight of equity 0.918219636 Weight of equity 0.410153509 Weight of equity 1 Weight of equity 1.193523986
Weight of debt 0.081780364 Weight of debt 0.589846491 Weight of debt 0 Weight of debt -0.193523986
Tax Rate 20% Tax Rate 20% Tax Rate 20% Tax Rate 41%
WACC 16.1331% WACC 10.7476% WACC 11.0000% WACC 16.2410%
Distress premium 3% Distress premium 3% Distress premium 1% Distress premium 3%
Risk adjusted WACC 19.1331% Risk adjusted WACC 13.7476% Risk adjusted WACC 12.0000% Risk adjusted WACC 19.2410%
Assumptions

Particulars Amount
Depreciation as a % of 0.26076
revenue
Amortization as a % of 0.07326
revenue
Capital Expenditure as a % 0.731753
of Revenue
Alternative 1: Liquidation
Adelphia’s Hypothetical Liquidation Valuation and Allocation to Liabilities

Concept Value ($ millions)

Restricted Cash 0
Cash 286
Cable Systems 13,193
Subtotal 13,479
Less: Break Up Fee -440
Chapter 7 Fees and Expenses -449
Add: Non-Debtor Subsidiaries 275
Estimated Liquidation Proceeds 12865
Less: Net Holdbacks -451
Net Estimated Liquidation Proceeds 12414
Less: Average liabilities to be paid 12246.17996
Proceeds available to the shareholders 167.820039
Number of Shares 253.74
Value Per Share 0.661385824
Now presenting..

Mohammad Hossain
ID: 20-373
Alternative 2: Stand-alone
(i) Private Placement of Equity.
Enterprise Value $2789 million
Number of Shares 605.7
Value Per Share $4.60

Assumptions
WACC 19.13%
Growth rate .04%
Distress Cost 40%
Probability of Distress 50 %
Alternative 2: Stand-alone
(i) Private Placement of Equity.

Forecast: Value Per Share

Statistic Forecast values
Trials 10,000
Base Case 14.07
Mean 14.27
Median 14.05
Mode '---
Standard Deviation 2.41
Variance 5.8
Skewness 0.5904
Kurtosis 3.66
Coeff. of Variation 0.1688
Minimum 7.81
Maximum 25.81
Mean Std. Error 0.02
Alternative 2: Stand-alone
(ii) Optimum Debt-Equity
Enterprise Value $1782 million
Number of Shares 376.9
Value Per Share $4.60

Assumptions
WACC 13%
Growth rate .03%
Distress Cost 70%
Probability of Distress 75 %
Alternative 2: Stand-alone
(ii)Optimum Debt-Equity
Forecast: Value Per Share
Statistic Forecast values
Trials 10,000
Base Case 4.73
Mean 5.09
Median 4.74
Mode '---
Standard Deviation 12.28
Variance 150.92
Skewness 0.1484
Kurtosis 3.24
Coeff. of Variation 2.41
Minimum -42.18
Maximum 59.53
Mean Std. Error 0.12
Now presenting...

Israt Jahan Ananna

ID: 20-306
Alternative 2: Stand-alone
(iii)Debt-Equity Swap

Enterprise Value
$109242.4 million
Number of Shares 21731
Value Per Share $5.02

Assumptions
WACC 13%
Growth rate .04%
Distress Cost 30%
Probability of Distress 50 %
Alternative 2: Stand-alone
(iii)Debt-Equity Swap
Forecast: Value Per Share (SWAP)
Statistic Forecast values
Trials 10,000
Base Case 5.03
Mean 5.09
Median 5.03
Mode '---
Standard Deviation 0.66
Variance 0.43
Skewness 0.6397
Kurtosis 3.75
Coeff. of Variation 0.1291
Minimum 3.35
Maximum 8.48
Mean Std. Error 0.01
Alternative 3: Bidding Offer
(i)TWC
Enterprise Value
$109242.4 million
Number of Shares 21731
Value Per Share $5.02

Assumptions
WACC 19.24%
Growth rate .07%
Distress Cost 30%
Probability of Distress 55%
Alternative 3: Bidding Offer
(i)TWC
Forecast: Value Per Share
Statistic Forecast values
Trials 2,000
Base Case 7.93
Mean 8.32
Median 7.92
Mode '---
Standard Deviation 5.66
Variance 32.06
Skewness 0.4521
Kurtosis 3.49
Coeff. of Variation 0.4809
Minimum -6.86
Maximum 35.18
Mean Std. Error 0.13
Alternative 3: Bidding Offer
(ii) Others

Other bidders want to

Adelphia demands payment buy cluster of cable TV
Cablevision also offers less systems that will decline
of $17.5 billion but KKR
than $17.5 billion that is $17.1 the number of
offers only $15 billion cash billion. subscribers as well as
for the entire company. the revenue of the
company.
Alternative 3: Bidding Offer
(ii) Others

Other bidders want to

Adelphia demands $17.5 buy cluster of cable TV
Cablevision also offers less systems that will decline
billion cash but KKR offers
than $17.5 billion cash that is the number of
only $15 billion cash for the $17.1 billion subscribers as well as
entire company. the revenue of the
company.
Recommendation
Value per Share of TWC Combined
found $7.93 where Equity Value is
$3.72 million.
Shareholder of Adelphia TWC seems lucrative
will get 16% of Equity but it provides low
stake of TWC 0.59
million. Only $2.35 will be
value to the existing
captured by the shareholder of the
shareholders of Adelphia. Adelphia.
Recommendation
VALUE PER SHARE
Alternatives Value per share
Liquidation $0.66 TWC Combined (16% stake by Adelphia) $2.35

Private Placement of Equity $4.61

Debt-Equity Swap $5.03
Optimum Debt to Equity $4.73
Debt-Equity Swap $5.03 Optimum Debt to Equity $4.73

TWC Combined (16% stake by Adelphia) $2.35

Private Placement of Equity $4.61

Liquidation $0.66
Reorganization under chapter 11 through
Debt to Equity swap.
Justification

 Preference by creditors.

 Adds highest value to stockholders.

 Change of management will help in turning around the company.

Finance Structure
Particulars Amount in million($)
DIP Financing
First Priority term loan $1,760.00
Second Priority term loan $4,856.10
First Priority Revolving Credit $2,183.90
Total Fund $8,800.00
Payment to Debtholders $16,187.00
Payment through SWAP $7,387.00

The Company has $338 million

cash in hand to run the
company.
Terms
How serious was cablevisions last minute
offers?
What will be the traditional stand-
alone reorganization plan?
What would be the impact on bidding
process?
 Cable Vision’s offer dominates other offers.
Because it bids more cash offer than TWC
and other companies. But the company
offers less amount of cash than the
demand of the creditors of Adelphia.
 Debt-equity swap will be the stand-
alone reorganization plan. Creditors will
get per share at the offer price of $.0.80
that is worth of $5.03 value per share.
 Adelphia will have to pay the break up fee
$440 million as the company wants to get
out from the auction.
THANK YOU