Is the telecom meltdown finally spilling over to cable? Maybe so.
Adelphia Communications announced today that it would postpone the release of its annual report over worries about properly disclosing its debt and off-balance-sheet transactions. Skittish investors reacted poorly to the news, and the company’s stock fell over 13 percent.
“We recognize that, in the current financial environment, shareholders are looking for greater clarity and transparency from the companies in which they choose to invest,” John Rigas, chairman and chief executive, said today in a press release explaining the delay.
The tumble started this morning, when the company officially requested an extension for filing its annual 10-K report with the Securities and Exchange Commission. The company said the extension is being sought to allow it and “its outside auditors additional time to review certain accounting matters relating to co-borrowing credit facilities which Adelphia is party to.”
The source of Adelphia’s woes is one such “co-borrowing transaction” involving a company called Highland Holdings. This entity, according to several published reports, has borrowed undisclosed monies based on guarantees from Adelphia, and some of the borrowed funds were then used by the company’s owners — the Rigas family — to buy yet more Adelphia stock.
The company would not comment on these reports. But investors are concerned not only about the size of the transaction – Highland is said to control about $2.3 billion out the $14 billion in overall debt the company carries — but the ability of Highland itself to cover these loans.
It was widely expected that the company today would announce the full extent of its deal with Highland, but the postponement only increased concerns about the health of Adelphia.
The move has triggered a wave of rating reviews for the company Standard & Poor’s and others have put Adelphia is under a watch with a potential for a downgrade. “We are seeing how this situation affects their overall position,” says Greg Zappin, director of research at S&P.
Regardless, investors have pummeled the stock. As of 2:30 eastern time, the issue was down to $12.89, a slide of just under 13%. The rundown is yet another in a wave of financial blows to the company. Adelphia stock fell roughly 25% when the original Highland Holdings relationship was announced last week and is off nearly 40% since the beginning of the month, when cable stocks as a group began to tumble over concerns of profitability and debt load.
It is not yet clear whether the cable sector as a whole is in for the same rough ride as telecom. The expectations are that the market is waiting to see just how widespread Adelphia’s problems are. “They have some explaining to do, and that will take some time,” says Ian Olgeirson, an analyst at Kagan World Media who covers telecom and cable companies.
Cable stocks overall edged down today. Cablevision was off 3.68%, Cox .9% and Charter slipped 1.9%. Larger companies like AOL and AT&T remained unaffected.
Adelphia Communications Corporation, with headquarters in Coudersport, Pennsylvania, is the sixth largest cable company in the country.