Adelphia Communications' auction for its assets is expected to dictate valuations in the entire cable sector, according to fixed-income officials eagerly anticipating the conclusion of a two-year process. Adelphia said last week it expects the bidding process, which is part of its bankruptcy proceedings, to finish next week. The apparent buyer ambivalence over the auction has been spiking volatility across cable names, especially in the last week.
Oren Cohen, principal in the asset management arm of the Brownstone Investment Group in New York, a high-yield and distressed investor and formerly an Institutional Investor-ranked researcher in cable, said the volatility is because of the uncertainty over bid levels for Adelphia. "The bear case is, if Time Warner and Comcast Communications are not willing to pay up, what are they saying about cable valuations?" he reflected, referring to the two likeliest suitors. And because cable accounts for about 5% of the Merrill Lynch high-yield index, the auction is of interest to the broader high-yield market.
Prices on Adelphia's 10 1/4% of '11s jumped as high as 102 last week on optimism for the sale, but were trading around 97 1/2 as BW went to press. The auction is unique because it will likely benchmark Charter Communications' value as well, agreed analysts. Its 8 5/8% of '11s followed suit and hit 87 at the start of the week before falling to 84 1/2.
Although it is uncertain exactly how much Adelphia will fetch, the final total will set a benchmark for public market cable valuations, said Aryeh Bourkoff, managing director and cable/satellite analyst at UBS. He explained they have been low for some time and if Adelphia fetches a good price, it could adjust valuations across the board in the sector. He declined comment specifically on the state of the bidding process as UBS is an advisor on the sale.
Several analysts suggest the sale will go better than expected. Initially, market consensus was that Comcast and Time Warner's combined bid would come in around $17-18 billion, but one analyst mentioned some creditors pegged Adelphia at $20-21 billion. Furthermore, there is some buzz a private equity firm may place an aggressive, unexpected bid for the whole company, added one distressed analyst. He declined to be more specific and further details about which private equity firm may be in the running could not be determined.
While a lot of consolidation has already happened in the cable sector, analysts pointed to Charter as a potential candidate for acquisition if cable valuations bounce back. A call to Vanessa Wittman, executive v.p. and cfo of Adelphia, was referred to Paul Jacobson, spokesman, who did not return the call by press time. Paul Allen, chairman of Charter, did not return a call by press time.
