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Lender's Liability Reach May Be Clarified in Adelphia Recovery Trust
Adelphia Communications Corp. may he a blast from the past for most readers since it has been going on for more than eight years. It seems like ages ago that the collapse of the cable giant was gripping news as the financial fraud underlying the collapse was unraveled. However, on Sept. 22. 2010, the Adelphia RecoveryTrust (ART) announced thai i! reached agreement in principle to settle its claims against Adelphia's pre-petition lenders and investment banks in lhe suit entitled Adelphia Recovery Trust v. Bank of America NA, ei al.. No. 05 CIV 9050 (S. D. N. Y.) (bank litigation) for $175 million.1
This announcement indicates that a significant part of the remaining Adelphia story may finally be coming to a conclusion. This follows an earlier pivotal opinion issued in 2009 by the district court in the bank litigation that permitted the action to proceed, which makes it instrumental in the events that have led to the settlement. ' The opinion also shows the breadth and extremes to which lender-liability claims may extend based, on the facts of u particular case. Most of the background information was not discussed in this article, which instead focuses on details not generally known, such as the different tranches of secured debt at issue and were critical to the court's decision.
Background
At the center of the Adelphia fraud was the Rigas family, which had founded the company. In the late 1990s, the Rigases needed billions of dollars to acquire new cable businesses, purchase slock to maintain their ownership of Adelphia and finance an extremely extravagant lifestyle. However, the Rigases did not have the personal capital to fund these items. They turned to the Adelphia balance sheet and a series of banks, led by multiple agent banks and their affiliated investment banks. The Rigases worked with the agent and investment banks and had Rigas family entities (RFEs) enter into co-borrowing facilities with public Adelphia subsidiaries, which permitted the Rigas lamiJy to borrow billions of dollars, guaranteed almost exclusively by AueJphia's assets. Adelphia's subsequent disclosure of billions of dollars in liabilities associated with the co-borrowing facilities - approximately $2.2 billion, which had not previously been reported on its balance...