We have reviewed the financial information provided for Adelphia Communications Corporation for the years 1992-1996. We have also evaluated the Company’s position and strategy within the industry, standard industry practices, and evaluated the Company’s ability to repay debt. We have concluded that the Company should be considered high-risk; however the decision of whether to grant loans to the Company should be based on the creditor’s acceptable level of risk. Loan terms commensurate with assessed risk have been provided in this discussion. Our analysis and recommendations are based on evaluation of the following:
* Issue 1: Evaluation of business strategy and identification of key business risks
* Issue 2: Appropriateness of financial strategy for industry
* Issue 3: Continued appropriateness of financial strategy in correlation with industry changes
* Issue 4: Loan recommendation decision including potential terms
* Issue 5: Other financing options for Adelphia
Issue 1: Evaluation of business strategy and identification of key business risks
The Company’s strategy places primary focus on acquisition rather than on internal growth. This is due to the capital intensive nature of the industry where exuberant outlays are required for expansion and laying of cable into new areas. By acquiring existing cable networks, the Company is able to forego some of the initial expense associated with expansion.
The major business risks faced by the Company are primarily external and relate to the cable industry. The cable industry is capital intensive and highly competitive. The Company relies heavily on debt financing and relative to others in the industry, the Company is expending more of their revenues to cover interest on debt. The issue of technological growth ties into competitiveness. This growth requires upgrades of cable systems and expansion of services, such as internet and phone services,... [continues]
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