Table ofContents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31,2010**

 

**or**

 

**o****         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from                  to                  **

 

**Commission File Number: 000-53209**

 

**Adelphia Recovery Trust**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                      | ** ** | **11-6615508**                        |
|-------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or 

organization) |       | (I.R.S. Employer  Identification No.) |

 

**919 North Market Street, 17th Floor,PO Box 8705**

**Wilmington, Delaware**

(Address of principal executive offices) (Zip Code)

 

**302-652-4100 Attn: Dean Ziehl**

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed sincelast report)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. x Yes No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate website, if any, every interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). o Yes No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated  filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|------------------------------|
|                                           |   |                         |
| Non-accelerated  filer x                       |   | Smaller  reporting company o |
| (Do not check if  a smaller reporting company) |   |                         |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).    o Yes No x

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by a court.  o Yes No o

 

 

 

----

Table ofContents

 

ADELPHIA RECOVERY TRUST

FORM 10-Q

INDEX

 
| PART I — FINANCIAL INFORMATION                                                             |   | 3      |
|------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                 |   |   |
| ITEM 1.  FINANCIAL STATEMENTS (unaudited)                                                            |   | 3      |
|                                                                                                 |   |   |
| Condensed  Balance Sheets as of March 31, 2010 and December 31, 2009                       |   | 3      |
|                                                                                                 |   |   |
| Condensed  Statements of Operations for the three months ended March 31, 2010 and  2009         |   | 4      |
|                                                                                                 |   |   |
| Condensed  Statements of Cash Flows for the three months ended March 31, 2010 and  2009         |   | 5      |
|                                                                                                 |   |   |
| Notes to  Condensed Financial Statements                                                             |   | 6      |
|                                                                                                 |   |   |
| ITEM  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS |   | 8      |
|                                                                                                 |   |   |
| ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                  |   | 13     |
|                                                                                                 |   |   |
| ITEM 4. CONTROLS AND  PROCEDURES                                                                     |   | 13     |
|                                                                                                 |   |   |
| PART II                                                                                         |   | 14     |
|                                                                                                 |   |   |
| ITEM 1. LEGAL PROCEEDINGS                                                                            |   | 14     |
|                                                                                                 |   |   |
| ITEM  1A. RISK FACTORS                                                                               |   | 15     |
|                                                                                                 |   |   |
| ITEM  6. EXHIBITS                                                                                    |   | 16     |
|                                                                                                 |   |   |
| SIGNATURES                                                                                           |   | 17     |
|                                                                                                 |   |   |
| CERTIFICATIONS                                                                                       |   |   |

 

2

----

Table of Contents

 

**PART 1- FINANCIAL INFORMATION**

 

Item 1   Financial Statements

 

**AdelphiaRecovery Trust**

**UnauditedCondensed Balance Sheets**

** **
| ** **                           | ** ** | **As of  March 31,  2010** | ** **  | **As of  December 31,  2009** | ** ** |
|--------------------------------------|------------|---------------------------------|-------------|------------------------------------|------------|
|                                 |       |                            |        |                               |       |
| **Assets**                           |       |                            |        |                               |       |
| Cash and cash equivalents            |       | $                               | 81,933,391  |                               | $          | 164,327,745 |   |
| Temporary investments                |       | 73,030,706                      |        | —                             |       |
| Prepaid assets                       |       | 500,013                         |        | 611,363                            |       |
| Note and accrued interest receivable |       | 5,876,311                       |        | 5,778,805                          |       |
| Total assets                         |       | $                               | 161,340,421 |                               | $          | 170,717,913 |   |
|                                 |       |                            |        |                               |       |
| **Liabilities and net assets**       |       |                            |        |                               |       |
| Accrued expenses                     |       | $                               | 2,700,258   |                               | $          | 3,311,521 |   |
| Total liabilities                    |       | 2,700,258                       |        | 3,311,521                          |       |
|                                 |       |                            |        |                               |       |
| Net assets                           |       | 158,640,163                     |        | 167,406,392                        |       |
|                                 |       |                            |        |                               |       |
| **Total liabilities and net assets** |       | $                               | 161,340,421 |                               | $          | 170,717,913 |   |

 

See accompanying notes to the condensedfinancial statements.

 

3

----

Table ofContents

 

**AdelphiaRecovery Trust**

**UnauditedCondensed Statements of Operations**

 
| ** **                                  | ** ** | **For the  quarter ended  March 31, 2010** | ** ** | **For the  quarter ended  March 31, 2009** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
|                                        |       |                                            |       |                                            |       |
| **Revenues**                                |       |                                            |       |                                            |       |
| Litigation - court approved settlements     |       | $                                               | —     |                                            | $          | — |   |
| Litigation - other settlements              |       | —                                          |       | —                                          |       |
| Interest income                             |       | 149,966                                         |       | 328,912                                         |       |
| Total revenues                              |       | 149,966                                         |       | 328,912                                         |       |
|                                        |       |                                            |       |                                            |       |
| **Operating expenses**                      |       |                                            |       |                                            |       |
| General and administrative expenses         |       | 760,685                                         |       | 752,324                                         |       |
| Professional expenses - litigation          |       | 7,993,285                                       |       | 6,134,199                                       |       |
| Professional expenses — administrative |       | 162,225                                         |       | 110,201                                         |       |
| Total operating expenses                    |       | 8,916,195                                       |       | 6,996,724                                       |       |
|                                        |       |                                            |       |                                            |       |
| **Net loss**                                |       | $                                               | (8,766,229 | )                                               | $          | (6,667,812 | ) |

 

See accompanying notes to the condensedfinancial statements.

 

4

----

Table ofContents

 

**AdelphiaRecovery Trust**

**UnauditedCondensed Statements of Cash Flows**

 
| ** **                                              | ** ** | **For the  quarter ended  March 31,  2010** | ** ** | **For the  quarter ended  March 31,  2009** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
|                                                    |       |                                             |       |                                             |       |
| **Operating activities**                                |       |                                             |       |                                             |       |
| Net loss                                                |       | $                                                | (8,766,229 | )                                                | $          | (6,667,812 | ) |
| Changes in operating assets and liabilities:            |       |                                             |       |                                             |       |
| Prepaid assets                                          |       | 111,350                                          |       | 149,742                                          |       |
| Note and accrued interest receivable                    |       | (97,506                                          | )          | (97,506                                          | )          |
| Accrued expenses                                        |       | (611,263                                         | )          | 866,954                                          |       |
| Net cash used by operating activities                   |       | (9,363,648                                       | )          | (5,748,622                                       | )          |
|                                                    |       |                                             |       |                                             |       |
| Investing activities                                    |       |                                             |       |                                             |       |
| Purchase of temporary investments and accrued  interest |       | (73,030,706                                      | )          | —                                           |       |
| Net cash used by investing activities                   |       | (73,030,706                                      | )          | —                                           |       |
|                                                    |       |                                             |       |                                             |       |
| **Net change in cash and cash  equivalents**            |       | (82,394,354                                      | )          | (5,748,622                                       | )          |
| **Cash and cash equivalents,  beginning of period**     |       | 164,327,745                                      |       | 161,057,351                                      |       |
| **Cash and cash equivalents, end of  period**           |       | $                                                | 81,933,391 |                                             | $          | 155,308,729 |   |

 

See accompanying notes to the condensedfinancial statements.

 

5

----

Table ofContents

 

ADELPHIA RECOVERY TRUST

 

Notes to the CondensedFinancial Statements — March 31, 2010 (Unaudited)

 

1                                          Background

 

TheAdelphia Recovery Trust (the “ART”) was formed as a Delaware statutorytrust pursuant to that certain First Modified Fifth Amended Joint Chapter 11Plan of Reorganization (the “Plan”) of Adelphia CommunicationsCorporation (“Adelphia”) and certain of its subsidiaries (collectivelythe “Debtor”). The purpose of the ART is to prosecute the various causesof action transferred to the ART pursuant to the Plan (the “Causes of Action”)and distribute to the owners (the “Holders”) of the interests in the ART(“Interests”) the net proceeds of such Causes of Action (“Distributions”),according to the relative priorities established pursuant to the Plan, subjectto the retention of various amounts to fund the prosecution of those Causes ofAction and operations of the ART. Pursuant to the Plan, in addition to theCauses of Action, Adelphia transferred $25 million in cash to the ART, inconnection with its formation, in order to fund the initial expenses ofoperation.

 

Asset forth in the Plan, the ART is administered by five trustees (the “Trustees”)who are responsible for carrying out the purposes of the ART. Quest TurnaroundAdvisors, L.L.C. (“Quest”) is the plan administrator (in such capacity,the “Plan Administrator”) of Adelphia. Quest and Adelphia together haveagreed to provide certain administrative services to the ART. In order tofacilitate the provision of such administrative services, the ART has appointedQuest as the trust administrator of the ART (in such capacity, the “TrustAdministrator”).

 

2                                          Basis ofPresentation

 

Theaccompanying interim unaudited condensed financial statements of the ART havebeen prepared in accordance with generally accepted accounting principles inthe United States of America for interim periods (“US GAAP”) and withthe instructions to Form 10-Q.  As such, they do not include all ofthe information and disclosures required by US GAAP for complete financialstatements.  In the opinion of the Trustees, all adjustments (consistingof normal recurring accruals) considered necessary for a fair presentation ofthe interim unaudited condensed financial statements have been included. These condensed financial statements should be read in conjunction with the ART’saudited financial statements for the year ended December 31, 2009 includedin its Form 10-K filed with the Securities and Exchange Commission (“SEC”)on March 10, 2010. Interim results are not necessarily indicative of theresults for the complete fiscal year. The unaudited condensed balance sheet asof December 31, 2009 was derived from the audited financial statements forthe year then ended.

 

6

----

Table ofContents

 

3                                          Related PartyTransactions

 

TheTrust Administrator and Adelphia continue to provide administrative support tothe ART including maintaining electronic data and paper documents used inprosecuting the Causes of Action, financial reporting and support forDistributions when they might occur (including maintenance of data related tothe implementation of Plan provisions). These services have and will continueto be provided at no cost to the ART under the terms of various agreementsbetween the Trust Administrator and Adelphia. The ART financial statements donot reflect any amounts for these services.

 

4                                          Causes ofAction and Contingencies

 

Exceptas set forth below, there have been no material developments in the legalproceedings described in the ART’s Form 10-K as filed on March 10,2010.

 

BankLitigation

 

TheSecond Circuit scheduled oral argument for May 18, 2010 on the appeal ofthe District Court’s June 18, 2008 order dismissing certain fraudulenttransfer claims, voidable preference claims, and equitable subordination anddisallowance claims.

 

OnJanuary 25, 2010, the ART filed a motion seeking reconsideration or in thealternative, certification for immediate appeal of the District Court’s December 21,2010 order holding that the ART does not have standing to pursue claims onbehalf of ACC and is limited to asserting claims on behalf of the ObligorDebtors. That motion is fully briefed and is pending.

 

On February 12, 2010,the ART filed its oppositions to Defendants’ motion for summary judgment on allremaining state law tort claims based on the affirmative defense of in paridelicto and to the Investment Banks’ separate motion for summary judgment onthe fiduciary duty and gross negligence claims pending against them.  The ART also moved to reinstate the grossnegligence claim against the Agent Banks that had been dismissed by the BankruptcyCourt.  Both motions have been fullybriefed and are pending.  On March 2,2010, Defendants filed additional motions for summary judgment on all remainingtort, fraudulent concealment and BHCA claims.** **The parties currently are briefingthe additional summary judgment motions.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

FPLLitigation

 

Underthe current scheduling order, fact discovery is to be completed by November 12,2010, expert discovery is to be completed by May 16, 2011, and dispositivemotions shall be filed by June 14, 2011. The trial is set to begin on December 6, 2011.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

7

----

Table ofContents

 

LitigationIndemnification Fund Litigation

 

OnApril 16, 2010, Adelphia and ART filed a motion seeking Bankruptcy Courtapproval of a Stipulation and Consent Order by and among Adelphia, ART, andclaimant Societe Generale, S.A. resolving Adelphia’s and ART’s motion todisallow Societe Generale, S.A.’s fee claims. No objections to the Stipulationwere filed, although certain Claimants filed statements seeking to preserverights to the relief sought by them in the LIF Motion. The motion to approvethe Stipulation is pending before the Bankruptcy Court.

 

Theremaining parties are briefing the LIF Motion and will ask the Bankruptcy Courtto schedule an evidentiary hearing on the Claimants’ Motion and ART’s motion todisallow the Bank Lenders’ post-effective date fee claims once briefing iscomplete.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

5                                          Fair Value ofFinancial Instruments

 

Asof March 31, 2010, the ART had temporary investments in FDIC insuredsix-month bank certificates of deposit (“CDs”) which had a carryingvalue of $73.0 million. The carrying value represents the original investmentof $73.0 million, plus accrued interest of $30,706 through March 31, 2010.The carrying value approximates the fair value for these temporary investmentsas of March 31, 2010. The six-month CDs will mature on various dates in July 2010.

 

Thefair value of the note receivable and accrued interest has been determinedusing unobservable units (i.e. Level 3, as defined in Accounting StandardsCodification 820-10) and approximates $4.5 million as of March 31, 2010and $4.4 million as of December 31, 2009. The carrying values wereapproximately $5.9 million as of March 31, 2010 and approximately $5.8million as of December 31, 2009. The note bears 8% simple interest and isrecourse only to the proceeds of various life insurance policies on Mr. andMrs. Leonard Tow totaling approximately $28 million.

 

6                                          SubsequentEvents

 

Eventssubsequent to March 31, 2010 have been evaluated through May 7, 2010,the date the accompanying financial statements were issued. There have been nosubsequent events that would be material to the financial statements of theART, including Cause of Action settlements or judgments or Distributions ordecisions concerning future Distributions.

 

Item 2                     **Management Discussion and Analysis**

 

Overview

 

TheAdelphia Recovery Trust was formed as a Delaware statutory trust pursuant to thatcertain First Modified Fifth Amended Joint Chapter 11 Plan of Reorganization ofAdelphia and certain of its subsidiaries. The purpose of the ART is toprosecute the various Causes of Action transferred to the ART pursuant to thePlan and distribute to the owners of the Interests in the ART the net proceedsof such Causes of Action, according to the relative 

 

8

----

Table ofContents

 

priorities establishedpursuant to the Plan, subject to the retention of various amounts to fund theprosecution of those Causes of Action and operations of the ART. Pursuant tothe Plan, in addition to the Causes of Action, Adelphia transferred $25 millionin cash to the ART in connection with its formation in order to fund theinitial expenses of operation.

 

Adelphiaand certain of its subsidiaries filed for Chapter 11 bankruptcy protection in June 2002.During the bankruptcy, on July 31, 2006 the assets of Adelphia were soldfor a combination of cash and stock in Time Warner Cable, Inc. (“TWC”).In late 2006, representatives of various groups of creditors reached agreementon the allocation and distribution of the cash, TWC stock, other proceeds fromthe sale of estate assets and relative priorities to any Distributions arisingfrom the Causes of Action contributed to the ART. This agreement was embodiedin the Plan, which was confirmed in January 2007 and became effective on February 13,2007 (the “Effective Date”). Under the Plan, the creditors and equityholders of Adelphia and certain of its subsidiaries received one or more of thefollowing: cash, TWC stock, rights to future Distributions up to payment infull and the Interests.

 

TheART will dissolve upon the earlier of the resolution of all Causes of Actionand the distribution of all of its assets to the Holders or the fifthanniversary of its creation. However, the Bankruptcy Court may approve anextension of the term if deemed necessary for the purposes of resolving theCauses of Action and distributing the net proceeds to Holders.

 

Asset forth in the Plan and the Declaration of Trust for the ART, as amended (the“Declaration”), the ART is administered by five Trustees. These Trusteesare authorized to carry out the purposes of the ART. In particular, theTrustees are responsible for protecting, maintaining, liquidating to cash andmaximizing the value of the Causes of Action contributed to the ART, whether bylitigation, settlement or otherwise.

 

Distributions

 

Pursuantto the Plan and the Declaration, Distributions to Holders are net of any costsand expenses incurred by the ART in connection with administering, litigatingor otherwise resolving the various Causes of Action. Such costs and expenses mayalso include fees and expenses of the Trustees, premiums for directors andofficers insurance, and other insurance and fees and expenses of attorneys andconsultants. Distributions will be made only from assets of the ART and only tothe extent that the ART has sufficient assets (over amounts retained forcontingent liabilities and future costs and expenses, among other things) tomake such payments in accordance with the Plan and the Declaration. NoDistribution is required to be made to any Holder unless such Holder is toreceive in such Distribution at least $25.00 or unless such Distribution is thefinal Distribution to such Holder pursuant to the Plan and the Declaration.

 

Distributionswill be made at the sole discretion of the Trustees in accordance with theprovisions of the Plan and the Declaration. As of the date hereof, the Trusteeshave determined the present best course of action is to retain the existingcash in reserve to administer the ART and fund the prosecution of the Causes ofAction. Consequently, there 

 

9

----

Table ofContents

 

have been no Distributionsthrough the filing date of this Form 10-Q and none have been planned.

 

Asof March 31, 2010, the number of Interests outstanding in each serieseligible to receive a Distribution is as follows:

 
| **CVV Series of Interest:** | ** ** | **As of March 31, 2010** | ** ** |
|----------------------------------|------------|-------------------------------|------------|
| Series RF                   |       | 115,000,000                   |       |
| Series Arahova              |       | 722,639,681                   |       |
| Series FrontierVision       |       | 86,600,001                    |       |
| Series FPL                  |       | 25,575,129                    |       |
| Series Olympus              |       | 17,000,001                    |       |
| Series ACC-1                |       | 4,839,988,165                 |       |
| Series ACC-2                |       | 339,207,075                   |       |
| Series ACC-3                |       | 119,430,302                   |       |
| Series ESL (1)              |       | 17                            |       |
| Series ACC-4                |       | 1,790,968,272                 |       |
| Series ACC-5 (1)            |       | 458                           |       |
| Series ACC-6B               |       | 150,000,000                   |       |
| Series ACC-6B1 (1)          |       | 3                             |       |
| Series ACC-6D               |       | 575,000,000                   |       |
| Series ACC-6D1 (1)          |       | 229,004                       |       |
| Series ACC-6E/F             |       | 935,812,456                   |       |
| Series ACC-6E/F1 (1)        |       | 277,210                       |       |
| Series ACC-7                |       | 217,022,640                   |       |
| Series ACC-7A (1)           |       | 1,537,766,752                 |       |

 

----

(1) For each of these categories of Interests(which include disputed claims), each holder of a disputed claim was awardedone Interest. The number of Interests is expected to change based on theresolution of disputed claims.

 

**Results of Operations**

 

TheART operates pursuant to the Plan and the Declaration. The ART was formed as aDelaware statutory trust to prosecute various claims originally owned byAdelphia and, if any of the prosecutions are successful or are settled in amanner which provides economic benefit to the ART, to distribute excessproceeds over amounts retained to fund the prosecution of the Causes of Actionand operations of the ART, to the Holders. It is not possible to determine atthis time if there will be any excess proceeds available for a Distribution.

 

*First Quarter 2010 vs First Quarter 2009*

 

Totalrevenues decreased to approximately $0.2 million in the first quarter of 2010.The decrease of approximately $0.2 million was caused by decreased interestincome in the first quarter of 2010 compared to the first quarter of 2009. Thedecreased interest income was 

 

10

----

Table ofContents

 

caused by a reduction ininvestment yields in the first quarter of 2010 compared to the first quarter of2009. The Trust adjusted its investment strategy in the first quarter of 2010to improve yields as more fully described below in “Financial Condition andCash Flow”. There were no settlements or related revenues for the first quarterof 2010 or for the first quarter of 2009.

 

Totaloperating expenses for the ART increased to approximately $8.9 million in thefirst quarter of 2010 from approximately $7.0 million in the first quarter of2009. The increase of approximately $1.9 million was caused by increasedprofessional litigation costs in the first quarter of 2010 versus the firstquarter of 2009.  Professionaladministrative costs and general and administrative costs were comparable betweenthe two periods.

 

Professionallitigation costs increased in the first quarter of 2010 compared to the firstquarter of 2009 by approximately $1.9 million due to increased professionalactivity related to the Bank Cause of Action.

 

Professionaladministrative costs increased approximately $52,000 in the first quarter of2010 compared to the first quarter of 2009. The increased costs in the firstquarter of 2010 relate primarily to increased costs between the periods for ARTregulatory compliance.

 

Generaland administrative costs increased approximately $8,000 in the first quarter of2010 when compared to the first quarter of 2009. The ART experienced increasedcosts of approximately $98,000 in the first quarter of 2010 for bank services,Trustee additional service compensation and expenses and SEC compliance but hadoffsetting decreased costs of approximately $90,000 for audit and tax servicesand insurance between the same timeframes.

 

Asa result of the decrease in total revenues of approximately $0.2 million andthe increase in total operating expenses of approximately $1.9 million in thefirst quarter of 2010 compared to the first quarter of 2009, the net loss ofapproximately $8.8 million for the quarter ended March 31, 2010 wasapproximately $2.1 million higher than the net loss for the quarter ended March 31,2009.

 

**Financial Condition and Cash Flows**

 

TheART’s sources of liquidity are from (a) the $25 million transferred to theART by Adelphia pursuant to the Plan on the Effective Date, (b) thesuccessful resolution of Causes of Action and (c) earnings on investedcash balances. Receipts from these sources are used to pay professional andoperating expenses of the ART and to fund Distributions to the Holders afterreserving cash required to pay future professional and operating expenses ofthe ART. The Trustees regularly evaluate the future financial needs of the ART.After careful evaluation of future financial needs, the Trustees havedetermined that the present best course of action is to retain the existingcash in reserve to administer the ART and fund the prosecution of the Causes ofAction. Consequently, there have been no Distributions through the date of this10-Q and none have been announced.

 

Basedupon cash and cash equivalent balances as of March 31, 2010 totalingapproximately $81.9 million and temporary investments totaling approximately $73.0million 

 

11

----

Table ofContents

 

along with expected expensesand other potential disbursements, the ART expects to meet its obligations asthey come due in the next twelve months. Due to the uncertain nature of futurerevenues and expenses beyond twelve months, it is not possible to be certainthat cash will be available to cover all the future financial needs of the ART.Incurring debt, creating contingent obligation agreements and seekingmethods to reduce legal professional and administrative costs are allstrategies that could be undertaken to address liquidity issues should theyarise. These strategies could impact the ART’s ability to maximize recoveriesfrom settlements.

 

Thenature of the ART’s operation does not give rise to capital expenditures andthere are no current or expected commitments for capital expenditures in thenext twelve months. Should a need for capital expenditures arise, the ART wouldfund the requirement from existing assets. Additionally, the ART currently hasno long-term contracts or other long-term obligations.

 

Cashand cash equivalent balances at March 31, 2010 of approximately $81.9million are $82.4 million lower than as of December 31, 2009. This is dueto a use of cash and cash equivalents for operating activities of $9.4 million andfor investing activities of $73.0 million as a result of a reclassification ofcash and cash equivalents to temporary investments. The $9.4 million use ofcash for operating activities included a net loss for the three months ended March 31,2010 of approximately $8.8 million and a decrease in accrued expenses ofapproximately $0.6 million. The decrease in accrued expenses is due to thetiming of vendor payments. Non-cash operating activities include the accrual ofinterest on a note receivable during the three months ended March 31, 2010of approximately $0.1 million and the amortization of prepaid assets ofapproximately $0.1 million. Investing activities during the quarter includedthe investment of $73.0 million of available cash and cash equivalents into FDICfully-insured bank CDs with a six-month maturity when purchased. These CDs havea carrying value at March 31, 2010 that includes accrued interest of$30,706.

 

During the quarter, the ART moved a total of $129.0million of cash and cash equivalents from the U.S. Treasury and governmentagency securities money market fund to three-month and six-month FDICfully-insured bank CDs in order to improve the yields on invested cash. The$129.0 million of CDs is comprised of $73.0 million of six-month CDs classifiedas temporary investments and $56.0 million of three-month CDs that remainclassified as cash and cash equivalents. The total of $81.9 million in cash andcash equivalents at March 31, 2010 includes the $56.0 million of 3-monthCDs and $25.9 million of other investments and accrued interest. The ART considers all highly liquidinvestments purchased with a maturity of three months or less to be cashequivalents. As such, the three-month CDs have been classified as cashequivalents and the six-month CDs are classified as temporary investments. All investments during the quarter were fully compliant with the ARTinvestment policy.

 

**Debt and Other Long-term Obligations**

 

TheART has no debt, capital or operating lease or other long-term obligations andhas no current plans to incur such obligations.

 

**Cautionary Statement Regarding Risks and Uncertainties That May AffectFuture Results**

 

Thisreport on Form 10-Q contains forward-looking statements about thebusiness, financial condition and prospects of the ART. The actual results ofthe ART could differ materially from those indicated by the forward-lookingstatements because of various risks and uncertainties, including, withoutlimitation, the number of and proceeds from litigations 

 

12

----

Table of Contents

 

and/or settlements which aresuccessful, delays in obtaining proceeds, the amount of funding required forthe litigations and other operating expenses, economic conditions, changes intax and other governmental rules and regulations applicable to the ART,and other risks identified and described in the Form 10-K filed with theSEC on March 10, 2010. These risks and uncertainties are beyond theability of the ART to control, and in many cases, the ART cannot predict therisks and uncertainties that could cause its actual results to differmaterially from those indicated by the forward-looking statements. When used inthis report the words “believes,” “estimates,” “plans,” “expects,” and “anticipates”and similar expressions as they relate to the ART or its management areintended to identify forward-looking statements.

 

Item 3                     **Quantitative and Qualitative Disclosures about Market Risk**

 

TheART invests cash and cash equivalents in either FDIC insured deposit accounts,FDIC insured bank CDs or a money market fund invested in short-term U.S.Treasury and government agency securities including repurchase agreementscollateralized fully by U.S. Treasury and government agency securities. The CDshave 3 or 6 month maturity terms and as of March 31, 2010 the money marketfund has a 37 day effective maturity for the underlying securities. Interestincome from these investments is subject to interest rate fluctuations.

 

Item 4                                                                **Controlsand Procedures**

 

*Evaluation of Disclosure Controls and Procedures*

 

TheART maintains disclosure controls and procedures that are designed to ensurethat information required to be disclosed in its reports filed under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms. Disclosure controls andprocedures include controls and procedures designed to ensure that suchinformation is accumulated and communicated to ART Trustees and the TrustAdministrator as appropriate, to allow timely decisions regarding requiredfinancial disclosure.

 

TheTrustees and the Trust Administrator have completed an evaluation of theeffectiveness of the design and operation of disclosure controls and proceduresas of March 31, 2010. Based on their evaluation, the Trustees and theTrust Administrator concluded that as of March 31, 2010, the ART’sdisclosure controls and procedures were effective.

 

*Limitations on the Effectiveness of Controls*

 

TheTrustees and the Trust Administrator do not expect that the ART’s disclosurecontrols will prevent or detect all errors and all fraud. A control system, nomatter how well designed and operated, can provide only reasonable, notabsolute, assurance that the control system’s objectives will be met. Further,the design of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, no evaluationof controls can provide absolute assurance that all control issues andinstances of fraud, if any, 

 

13

----

Table of Contents

 

within the ART have beendetected. These inherent limitations include the realities that judgments indecision-making can be faulty, and that breakdowns can occur because of simpleerror or mistake. Controls can also be circumvented by the individual acts ofsome persons, by collusion of two or more people, or by management override ofthe controls. The design of any system of controls is based in part uponcertain assumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions. Over time, controls may become inadequate becauseof changes in conditions or deterioration in the degree of compliance withassociated policies or procedures. Because of the inherent limitations in acost-effective control system, misstatements due to error or fraud may occurand not be detected.

 

*Changes in Internal Control over Financial Reporting*

 

Duringthe quarter ended March 31, 2010, there were no changes in the ART’s internalcontrol over financial reporting that have materially affected, or arereasonably likely to materially affect, internal control over financialreporting.

 

**PART II**

 

Item 1                                        Legal Proceedings

 

Exceptas set forth below, there have been no material developments in the legalproceedings described in the ART’s Form 10-K as filed on March 10,2010.

 

Causesof Action and Contingencies

 

Exceptas set forth below, there have been no material developments in the legalproceedings described in the ART’s Form 10-K as filed on March 10,2010.

 

BankLitigation

 

TheSecond Circuit scheduled oral argument for May 18, 2010 on the appeal ofthe District Court’s June 18, 2008 order dismissing certain fraudulenttransfer claims, voidable preference claims, and equitable subordination anddisallowance claims.

 

OnJanuary 25, 2010, the ART filed a motion seeking reconsideration or in thealternative, consideration for immediate appeal of the District Court’s December 21,2010 order holding that the ART does not have standing to pursue claims onbehalf of ACC and is limited to asserting claims on behalf of the ObligorDebtors. That motion is fully briefed and is pending.

 

On February 12, 2010,the ART filed its oppositions to Defendants’ motion for summary judgment on allremaining state law tort claims based on the affirmative defense of in paridelicto and to the Investment Banks’ separate motion for summary judgment onthe fiduciary duty and gross negligence claims pending against them.  The ART also moved to reinstate the grossnegligence claim against the Agent Banks that had been dismissed by theBankruptcy Court.  Both motions have beenfully briefed and are pending.  On March 2,

 

14

----

Table of Contents

 

2010, Defendants filedadditional motions for summary judgment on all remaining tort, fraudulentconcealment and BHCA claims.** **The parties currently are briefingthe additional summary judgment motions.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

FPLLitigation

 

Underthe current scheduling order, fact discovery is to be completed by November 12,2010, expert discovery is to be completed by May 16, 2011, and dispositivemotions shall be filed by June 14, 2011. The trial is set to begin on December 6, 2011.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

LitigationIndemnification Fund Litigation

 

OnApril 16, 2010, Adelphia and ART filed a motion seeking Bankruptcy Courtapproval of a Stipulation and Consent Order by and among Adelphia, ART, andclaimant Societe Generale, S.A. resolving Adelphia’s and ART’s motion todisallow Societe Generale, S.A.’s fee claims. The deadline for objecting to approval of the stipulation was May 6,2010. No objections to the Stipulation were filed, although certain Claimantsfiled statements seeking to preserve rights to the relief sought by them in theLIF Motion. The motion to approve the Stipulation is pending before the BankruptcyCourt.

 

Theremaining parties are briefing the LIF Motion and will ask the Bankruptcy Courtto schedule an evidentiary hearing on the Claimants’ Motion and ART’s motion todisallow the Bank Lenders’ post-effective date fee claims once briefing iscomplete.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

Item 1A.                                                   Risk Factors

 

Asof the date of this filing there have been no material changes from the riskfactors previously disclosed in our “Risk Factors” in the ART’s Form 10-Kfor the year ended December 31, 2009 as filed with the SEC March 10,2010.

 

15

----

Table of Contents

 

Item 6                Exhibits

 
| 2.1*   |   | First  Modified Fifth Amended Joint Chapter 11 Plan of Reorganization of Adelphia  Communications Corporation and Certain of its Affiliated Debtors, effective  February 13, 2007 |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                   |
| 3.1*   |   | Restated  Certificate of Trust, dated February 13, 2007                                                                                                                           |
|   |   |                                                                                                                                                                                   |
| 3.2*   |   | Amendment  to Restated Certificate of Trust, dated March 15, 2007                                                                                                                 |
|   |   |                                                                                                                                                                                   |
| 3.3*   |   | Second  Amended and Restated Declaration of Trust, dated June 4, 2008                                                                                                             |
|   |   |                                                                                                                                                                                   |
| 3.4*   |   | Rules and  Procedures of Adelphia Recovery Trust                                                                                                                                  |
|   |   |                                                                                                                                                                                   |
| 4.1*   |   | Form of  Certificate Evidencing Undivided Beneficial Interests in the Assets of the  Adelphia Recovery Trust (Global Certificate)                                                 |
|   |   |                                                                                                                                                                                   |
| 4.2*   |   | Form of  Certificate Evidencing Undivided Beneficial Interests in the Assets of the  Adelphia Recovery Trust (Book Entry Certificate)                                             |
|   |   |                                                                                                                                                                                   |
| 10.1*  |   | Plan  Administrator Agreement, dated February 12, 2007                                                                                                                            |
|   |   |                                                                                                                                                                                   |
| 10.2*  |   | Trustee  Compensation Agreement                                                                                                                                                        |

 

----

*Incorporatedby reference to the Form 10 of Adelphia Recovery Trust (File No. 000-53209)filed April 30, 2008 and the amended Form 10 filed July 2, 2008.

 
| 31.1 | Section 302  Certification of Trustee                                                                                                                  |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 | Section 302  Certification of Trust Administrator                                                                                                      |
| 32.1 | Certification  of Trustee pursuant to 18 U.S.C. 1350 Section 1350, as adopted pursuant  to Section 906 of the Sarbanes Oxley Act of 2002          |
| 32.2 | Certification  Trust Administrator pursuant to 18 U.S.C. 1350 Section 1350, as adopted  pursuant to Section 906 of the Sarbanes Oxley Act of 2002 |

 

16

----

Table ofContents

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this Report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
| Date: May 7, 2010                                 |   |
|--------------------------------------------------------|--------|
|                                                   |   |
| By: Quest Turnaround Advisors, LLC                     |   |
| as Trust Administrator of the Adelphia Recovery  Trust |   |
|                                                   |   |
| /s/ Jeffrey A. Brodsky                                 |   |
| Jeffrey A. Brodsky                                     |   |
| Member                                                 |   |

 

17

----