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** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

** **

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

 

**For the quarterly period ended June 30,2009**

 

**or**

** **

**o****   ****TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES 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, 17****th**** Floor, PO Box 8705Wilmington, 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 since last 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

 

 

 

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ADELPHIA RECOVERY TRUST

FORM 10-Q

INDEX

 
| PART I —  FINANCIAL INFORMATION                                                            |   |
|------------------------------------------------------------------------------------------------------|--------|
|                                                                                                 |   |
| ITEM 1. FINANCIAL STATEMENTS  (unaudited)                                                            |   |
|                                                                                                 |   |
| Condensed Balance Sheets as of  June 30, 2009 and December 31, 2008                        |   |
|                                                                                                 |   |
| Condensed Statements of  Operations for the three and six months ended June 30, 2009 and 2008   |   |
|                                                                                                 |   |
| Condensed Statements of Cash  Flows for the six months ended June 30, 2009 and 2008             |   |
|                                                                                                 |   |
| Notes to  Condensed Financial Statements                                                             |   |
|                                                                                                 |   |
| ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS |   |
|                                                                                                 |   |
| ITEM 4. CONTROLS  AND PROCEDURES                                                                     |   |
|                                                                                                 |   |
| PART II                                                                                         |   |
|                                                                                                 |   |
| ITEM  1. LEGAL PROCEEDINGS                                                                           |   |
|                                                                                                 |   |
| ITEM  1A. RISK FACTORS                                                                               |   |
|                                                                                                 |   |
| ITEM 6. EXHIBITS                                                                                     |   |
|                                                                                                 |   |
| SIGNATURES                                                                                           |   |
|                                                                                                 |   |
| CERTIFICATIONS                                                                                       |   |

 

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**PART 1 - FINANCIALINFORMATION**

 

Item1   Financial Statements

 

**AdelphiaRecovery Trust**

**Unaudited Condensed Balance Sheets**

 
| ** **                            | ** ** | **As of  June 30, 2009** | ** **  | **As of  December 31, 2008** | ** ** |
|---------------------------------------|------------|-------------------------------|-------------|-----------------------------------|------------|
| ** **                            | ** ** | ** **                    | ** **  | ** **                        | ** ** |
| **Assets**                            |       |                          |        |                              |       |
| Cash  and cash equivalents            |       | $                             | 147,261,459 |                              | $          | 161,057,351 |   |
| Prepaid  assets                       |       | 91,618                        |        | 374,356                           |       |
| Note  and accrued interest receivable |       | 5,583,793                     |        | 5,388,781                         |       |
| Total  assets                         |       | $                             | 152,936,870 |                              | $          | 166,820,488 |   |
|                                  |       |                          |        |                              |       |
| **Liabilities and net assets**        |       |                          |        |                              |       |
| Accrued  expenses                     |       | $                             | 2,443,061   |                              | $          | 550,871 |   |
| Total  liabilities                    |       | 2,443,061                     |        | 550,871                           |       |
|                                  |       |                          |        |                              |       |
| Net  assets                           |       | 150,493,809                   |        | 166,269,617                       |       |
|                                  |       |                          |        |                              |       |
| **Total liabilities and net assets**  |       | $                             | 152,936,870 |                              | $          | 166,820,488 |   |

 

See accompanying notes tothe condensed financial statements.

 

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**AdelphiaRecovery Trust**

**Unaudited Condensed Statements ofOperations**

 
| ** **                               | ** ** | **For the quarter  ended June 30, 2009** | ** ** | **For the quarter  ended June 30, 2008** | ** ** | **For the six  months ended  June 30, 2009** | ** ** | **For the six  months ended  June 30, 2008** | ** **  |
|------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|-------------|
|                                     |       |                                          |       |                                          |       |                                              |       |                                              |        |
| **Revenues**                             |       |                                          |       |                                          |       |                                              |       |                                              |        |
| Litigation  - court approved settlements |       | $                                             | —     |                                          | $          | —                                            |       | $                                                 | —      |   | $ | 200,206 |   |
| Litigation  - other settlements          |       | —                                        |       | 850,194                                       |       | —                                            |       | 910,194                                           |        |
| Interest  income                         |       | 199,254                                       |       | 1,101,159                                     |       | 528,166                                           |       | 2,790,978                                         |        |
| Total  revenues                          |       | 199,254                                       |       | 1,951,353                                     |       | 528,166                                           |       | 3,901,378                                         |        |
|                                     |       |                                          |       |                                          |       |                                              |       |                                              |        |
| **Operating expenses**                   |       |                                          |       |                                          |       |                                              |       |                                              |        |
| General  and administrative expenses     |       | 457,473                                       |       | 933,470                                       |       | 1,209,797                                         |       | 1,448,480                                         |        |
| Professional  expenses - litigation      |       | 8,789,310                                     |       | 5,507,525                                     |       | 14,923,509                                        |       | 11,988,265                                        |        |
| Professional  expenses - administrative  |       | 60,467                                        |       | 940,322                                       |       | 170,668                                           |       | 1,664,766                                         |        |
| Total  operating expenses                |       | 9,307,250                                     |       | 7,381,317                                     |       | 16,303,974                                        |       | 15,101,511                                        |        |
|                                     |       |                                          |       |                                          |       |                                              |       |                                              |        |
| **Net loss**                             |       | $                                             | (9,107,996 | )                                             | $          | (5,429,964                                        | )          | $                                                 | (15,775,808 | ) | $ | (11,200,133 | ) |

 

See accompanyingnotes to the condensed financial statements.

 

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**AdelphiaRecovery Trust**

**Unaudited Condensed Statements ofCash Flows**

 
| ** **                                         | ** ** | **For the six  months ended  June 30, 2009** | ** **  | **For the six  months ended  June 30, 2008** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------|-------------|---------------------------------------------------|------------|
| ** **                                         | ** ** | ** **                                        | ** **  | ** **                                        | ** ** |
| **Operating activities**                           |       |                                              |        |                                              |       |
| Net  loss                                          |       | $                                                 | (15,775,808 | )                                                 | $          | (11,200,133 | ) |
| Changes  in operating assets and liabilities:      |       |                                              |        |                                              |       |
| Prepaid  assets                                    |       | 282,738                                           |        | (555,827                                          | )          |
| Note  and accrued interest receivable              |       | (195,012                                          | )           | (195,011                                          | )          |
| Accrued  expenses                                  |       | 1,892,190                                         |        | (5,754,314                                        | )          |
| Net  cash used by operating activities             |       | (13,795,892                                       | )           | (17,705,285                                       | )          |
|                                               |       |                                              |        |                                              |       |
| **Net change in cash and cash equivalents**        |       | (13,795,892                                       | )           | (17,705,285                                       | )          |
| **Cash and cash equivalents, beginning of period** |       | 161,057,351                                       |        | 189,684,573                                       |       |
| **Cash and cash equivalents, end of period**       |       | $                                                 | 147,261,459 |                                              | $          | 171,979,288 |   |

 

See accompanying notes tothe condensed financial statements.

 

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ADELPHIA RECOVERY TRUST

 

Notes to the CondensedFinancial Statements — June 30, 2009 (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 variouscauses of action transferred to the ART pursuant to the Plan (the “Causes ofAction”) and distribute to the owners (the “Holders”) of theinterests in the ART (“Interests”) the net proceeds of such Causes of Action(“Distributions”), according to the relative 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.

 

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

 

The accompanying interim unaudited condensedfinancial statements of the ART have been prepared in accordance with generallyaccepted accounting principles in the United States of America for interimperiods (“US GAAP”) and with the instructions to Form 10-Q.  As such, they do not include all of theinformation and disclosures required by US GAAP for complete financialstatements.  In the opinion of theTrustees, all adjustments (consisting of normal recurring accruals) considerednecessary for a fair presentation of the interim unaudited condensed financialstatements have been included.  Thesecondensed financial statements should be read in conjunction with the ART’saudited financial statements for the year ended December 31, 2008 includedin its Form 10-K filed with the Securities and Exchange Commission (“SEC”)on March 10, 2009. Interim results are not necessarily indicative of theresults for the complete fiscal year. The unaudited condensed balance sheet asof December 31, 2008 was derived from the audited financial statements forthe year then ended.

 

3                                          Related PartyTransactions

 

The Trust Administrator and Adelphia continue toprovide administrative support to the ART including maintaining electronic dataand paper documents used in prosecuting the

 

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Causesof Action, financial reporting and support for Distributions when they mightoccur (including maintenance of data related to the implementation of Planprovisions). These services have and will continue to be provided at no cost tothe ART under the terms of various agreements between the Trust Administratorand Adelphia. The ART financial statements do not reflect any amounts for theseservices.

 

4                                          Causes ofAction and Contingencies

 

Except as set forth below, there have been nomaterial developments in the legal proceedings described in the ART’s Form 10-Kas filed with the SEC on March 10, 2009 or as updated in the ART’s Form 10-Q filedon May 8, 2009.

 

Bank Litigation

 

OnJune 18, 2008, the District Court dismissed certain fraudulent transferclaims, avoidable preference claims, and equitable subordination anddisallowance claims. Under the current scheduling order, the trial on theremaining claims will commence on April 8, 2010.

 

With respect to the claims dismissed by the DistrictCourt on June 18, 2008 and certain claims dismissed in 2007 by theBankruptcy Court, the District Court entered a final judgment. The ART filed atimely notice of appeal and the appeal is being briefed by the parties in theSecond Circuit Court of Appeals.

 

At this time, the ART cannot predict the outcome ofthese proceedings or estimate the possible financial effect of theseproceedings on the ART’s financial statements.

 

Motorola Litigation

 

OnAugust 22, 2007, plaintiffs moved for summary judgment to disallow aportion of the defendants’ claims against certain Adelphia debtors. Plaintiffs’motion is pending. Discovery is ongoing and the bankruptcy court has orderedthe parties to be ready for trial on the claims for equitable subordination andequitable disallowance on October 8, 2009.

 

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

 

Sabres Litigation

 

OnFebruary 17, 2009, the District Court for the Western District of New Yorkissued a final judgment granting a permanent injunction against the prosecutionof fraudulent conveyance claims against Key Bank N.A., Fleet National Bank, andHSBC Bank USA, N.A. (collectively, the “Sabres Banks”) by the ART in the BankLitigation. The fraudulent conveyance claims against the Sabres Banks involveAdelphia’s purchase of and payments on certain loans made by the Sabres Banksto the Buffalo Sabres hockey team. The ART filed a timely notice of appeal, andthe appeal has been briefed by the parties in the Second Circuit Court ofAppeals. Oral argument has not been scheduled.

 

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

 

Litigation Indemnification Fund Litigation

 

Discoveryrelated to the JV LIF Claims is pending and an evidentiary hearing on themotion has not been set.

 

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 June 30, 2009, the fair value of cash and cash equivalents and accruedexpenses approximates their carrying values using active market data (i.e.Level 1, as defined). Further, the fair value of the note receivable andaccrued interest, as described in the ART’s Form 10-K as filed on March 10,2009, has been determined using management’s assessment of unobservable inputs(i.e. Level 3, as defined) and approximates $4.2 million as of June 30, 2009and $4.2 million as of December 31, 2008. The unobservable inputs are assessedand adjusted periodically based on current economic and other risk factors. Thecarrying values were $5.6 million as of June 30, 2009 and $5.4 million as of December31, 2008.

 

6                                          SubsequentEvents

 

Subsequentevents have been evaluated through August 5, 2009, the date theaccompanying financial statements were issued. There have been no subsequentevents that would be material to the financial statements of the ART, includingCause of Action settlements or judgments or Distributions or decisionsconcerning future Distributions.

 

Item 2                                            ManagementDiscussion and Analysis

 

Overview

 

TheAdelphia Recovery Trust was formed as a Delaware statutory trust pursuant tothat certain First Modified Fifth Amended Joint Chapter 11 Plan ofReorganization of Adelphia and certain of its subsidiaries. The purpose of theART is to prosecute the various Causes of Action transferred to the ARTpursuant to the Plan and distribute to the owners of the Interests in the ARTthe net proceeds of such Causes of Action, according to the relative prioritiesestablished pursuant to the Plan, subject to the retention of various amountsto fund the prosecution of those Causes of Action and operations of the ART.Pursuant to the Plan, in addition to the Causes of Action, Adelphia transferred$25 million in cash to the ART in connection with its formation in order tofund the initial 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.

 

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However, the BankruptcyCourt may approve an extension of the term if deemed necessary for the purposesof resolving the Causes 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 expensesmay also 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 have been no Distributions through the filing dateof this Form 10-Q and none have been planned.

 

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Asof June 30, 2009, the number of Interests outstanding in each serieseligible to receive a Distribution is as follows:

 
| **CVV Series of Interest:** | ** ** | **As of June 30, 2009** | ** ** |
|----------------------------------|------------|------------------------------|------------|
| 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                |       | 281,933,289                  |       |
| 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                |       |

 

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(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.

 

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**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.

 

*SecondQuarter 2009 vs Second Quarter 2008*

 

Totalrevenues decreased to $0.2 million in the second quarter of 2009 compared to$2.0 million for the second quarter of 2008. The decrease of $1.8 million wascaused by decreased settlement revenues of $0.9 million and decreased interestincome of $0.9 million in the second quarter of 2009 compared to the secondquarter of 2008.

 

Therewere no settlements or related revenues in the second quarter of 2009 while thesecond quarter of 2008 included settlement revenue from a previous Adelphiavendor of $0.9 million. Both quarters ended June 30, 2009 and June 30,2008 reflect interest income from invested cash balances of the ART. Interestincome decreased primarily due to lower investment yields and lower cashbalances in the second quarter of 2009 versus the comparable period in 2008.

 

Totaloperating expenses for the ART increased to $9.3 million in the second quarterof 2009 from $7.4 million in the second quarter of 2008.  The increase of $1.9 million was caused byincreased professional litigation costs of $3.3 million in the second quarterof 2009 versus the second quarter of 2008. This increase was slightly offset bydecreases in professional administrative costs of $0.9 million and general andadministrative costs of $0.5 million in the second quarter of 2009 versus thesecond quarter of 2008.

 

Professionallitigation costs increased in the second quarter of 2009 compared to the secondquarter of 2008 by $3.3 million due to increased professional activity relatedto the various Causes of Action. The increased activity caused higherprofessional fees of $3.0 million in the second quarter of 2009 compared to thesecond quarter of 2008. Also, professional litigation costs increased by $0.3million in the second quarter of 2009 compared to the second quarter of 2008due to a reclassification of certain professional fees. The reclassificationdid not change total operating expenses or net income in either period.

 

Professionaladministrative costs decreased $0.9 million in the second quarter of 2009compared to the second quarter of 2008. The decreased costs in the secondquarter of 2009 from the second quarter of 2008 relate primarily to reducedcosts for ART regulatory compliance of $0.6 million and decreased costs of $0.3million related to the reclassification discussed in the preceding paragraph.

 

Generaland administrative costs decreased by $0.5 million in the second quarter of2009 compared to the second quarter of 2008. Additional service compensationpaid to the ART Trustees was paid in the first quarter of 2009 while in 2008 asimilar payment was made in the second quarter which caused a $0.3 milliondecrease in costs when comparing the second quarter of 2009 to the secondquarter of 2008. Also, Trustee base compensation decreased by $0.2 million inthe second quarter of 2009 when compared to the second quarter of 2008 due toretroactive payments made to the Trustees in the second quarter of 2008 thataligned their historical compensation to reflect final compensation agreements.

 

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Asa result of the decrease in total revenues of $1.8 million and the increase intotal operating expenses of $1.9 million in the second quarter of 2009 comparedto the second quarter of 2008, the net loss of $9.1 million for the quarterended June 30, 2009 was $3.7 million higher than the net loss for thequarter ended June 30, 2008.

 

*Six months ended June 30,2009 versus the six months ended June 30, 2008*

 

Totalrevenues decreased to $0.5 million for the six months ended June 30, 2009compared to $3.9 million for the six months ended June 30, 2008. Thedecrease of $3.4 million was caused by decreased settlement revenues of $1.1million and decreased interest income of $2.3 million for the six months ended June 30,2009 compared to the six months ended June 30, 2008.

 

Therewere no settlements or related revenues for the six months ended June 30,2009 while the six months ended June 30, 2008 included court approved Towsettlement proceeds of $0.2 million and other settlement revenue of $0.9million, including settlement revenue from a previous Adelphia vendor. Both sixmonth periods ended June 30, 2009 and June 30, 2008 reflect interestincome from invested cash balances of the ART. Interest income was decreasedprimarily due to lower investment yields and lower cash balances for the sixmonths ended June 30, 2009 versus the comparable period in 2008.

 

Totaloperating expenses for the ART increased to $16.3 million for the six monthsended June 30, 2009 from $15.1 million for the six months ended June 30,2008.  The increase of $1.2 million wascaused by increased professional litigation costs of $2.9 million for the sixmonths ended June 30, 2009 compared to the six months ended June 30,2008. This increase was offset by decreases in professional administrativecosts of $1.5 million and general and administrative costs of $0.2 million forthe six months ended June 30, 2009 versus the six months ended June 30,2008.

 

Professionallitigation costs have increased for the six months ended June 30, 2009 by$2.9 million due to increased activity related to the various Causes of Action.The increased activity caused higher professional fees of $2.5 million for thesix months ended June 30, 2009 compared to the six months ended June 30,2008. Also, professional litigation costs increased $0.4 million for the sixmonths ended June 30, 2009 compared to the six months ended June 30,2008 due to a reclassification of certain professional fees.  The reclassification did not change totaloperating expenses or net income in either period.

 

Professionaladministrative costs decreased $1.5 million for the six months ended June 30,2009 compared to the six months ended June 30, 2008. The decreased costsfor the six months ended June 30, 2009 from the six months ended June 30,2008 relate primarily to

 

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reduced costs for ARTregulatory compliance matters and other costs of $1.1 million and decreasedcosts of $0.4 million related to the reclassification discussed in thepreceding paragraph.

 

Generaland administrative costs decreased by $0.2 million for the six months ended June 30,2009 compared to the six months ended June 30, 2008 due to decreases intotal compensation and expenses paid to the ART Trustees and ART audit fees.

 

Asa result of the decrease in total revenues of $3.4 million and the increase intotal operating expenses of $1.2 million for the six months ended June 30,2009 compared to the six months ended June 30, 2008, the net loss of $15.8million for the six months ended June 30, 2009 was $4.6 million higherthan the net loss for the six months ended June 30, 2008.

 

**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. After careful evaluation of future financial needs, the Trustees havenot declared any Distributions.

 

Basedupon cash and cash equivalent balances as of June 30, 2009 totaling $147.3million and expected expenses and other potential disbursements, the ARTexpects to meet its obligations as they come due in the next twelve months. Dueto the uncertain nature of future revenues and expenses beyond twelve months,it is not possible to be certain that cash will be available to cover all thefuture financial needs of the ART. Incurring debt, creating contingentobligation agreements and seeking methods to reduce legal professional andadministrative costs are all strategies that could be undertaken to addressliquidity issues should they arise. These strategies could impact the ART’sability to maximize recoveries from 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 June 30, 2009 of $147.3 million are $13.8million lower than as of December 31, 2008 due to a net loss for the sixmonths ended June 30, 2009 of $15.8 million offset by a provision of cashby operating activities of $2.0 million, related to an increase of $1.9 millionin accrued expenses and the amortization of $0.3 million of prepaid expenses.The increase in accrued expenses is due to the timing of vendor payments notbeing made as close to the period ended June 30, 2009 as they were for theperiod ended December 31, 2008. Non-cash operating activities include theaccrual of

 

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interest on a notereceivable during the six months ended June 30, 2009 of $0.2 million.Available cash is invested in either FDIC insured deposit accounts or afederally insured money market fund invested in short-term U.S. Treasury andgovernment agency securities. The money market fund manager has elected toparticipate in the Treasury Department’s temporary guarantee insurance programfor money market funds.

 

**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.

 

**CautionaryStatement Regarding Risks and Uncertainties That May Affect Future 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 and/or settlementswhich are successful, delays in obtaining proceeds, the amount of fundingrequired for the litigations and other operating expenses, economic conditions,changes in tax and other governmental rules and regulations applicable tothe ART, and other risks identified and described in the Form 10-K filedwith the SEC on March 10, 2009. These risks and uncertainties are beyondthe ability of the ART to control, and in many cases, the ART cannot predictthe risks 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 4                                                                Controls andProcedures

 

*Evaluationof 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 the ExchangeAct is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms. Disclosure controls and proceduresinclude controls and procedures designed to ensure that such information isaccumulated and communicated to ART Trustees and the Trust Administrator asappropriate, to allow timely decisions regarding required financial disclosure.

 

TheTrustees and the Trust Administrator have completed an evaluation of theeffectiveness of the design and operation of disclosure controls and proceduresas of the quarter ended June 30, 2009. Based on their evaluation of theeffectiveness of the design and operation of the ART’s disclosure controls andprocedures, the Trustees and the Trust Administrator concluded that as of June 30,2009, the ART’s disclosure controls and procedures were effective.

 

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*Limitations on theEffectiveness of Controls*

 

The Trustees and the Trust Administrator do not expect that the ART’sdisclosure controls will prevent or detect all errors and all fraud. A controlsystem, no matter how well designed and operated, can provide only reasonable,not absolute, assurance that the control system’s objectives will be met.Further, the design of a control system must reflect the fact that there areresource constraints, and the benefits of controls must be considered relativeto their costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within the ART have been detected. Theseinherent limitations include the realities that judgments in decision-makingcan be faulty, and that breakdowns can occur because of simple error ormistake. Controls can also be circumvented by the individual acts of somepersons, by collusion of two or more people, or by management override of thecontrols. The design of any system of controls is based in part upon certainassumptions about the likelihood of future events, and there can be no assurancethat any design will succeed in achieving its stated goals under all potentialfuture conditions. Over time, controls may become inadequate because of changesin conditions or deterioration in the degree of compliance with associatedpolicies or procedures. Because of the inherent limitations in a cost-effectivecontrol system, misstatements due to error or fraud may occur and not bedetected.

 

*Changes in Internal Control over Financial Reporting*

 

Duringthe quarter ended June 30, 2009, there were no changes in the ART’sinternal control over financial reporting that have materially affected, or arereasonably likely to materially affect, internal control over financialreporting.

 

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**PART II**

 

Item 1                                                                LegalProceedings

 

Except as set forth below, there have been nomaterial developments in the legal proceedings described in the ART’s Form 10-Kas filed with the SEC on March 10, 2009 or as updated in the ART’s Form 10-Qfiled on May 8, 2009.

 

Bank Litigation

 

OnJune 18, 2008, the District Court dismissed certain fraudulent transferclaims, avoidable preference claims, and equitable subordination anddisallowance claims. Under the current scheduling order, the trial on theremaining claims will commence on April 8, 2010.

 

Withrespect to the claims dismissed by the District Court on June 18, 2008 andcertain claims dismissed in 2007 by the Bankruptcy Court, the District Courtentered a final judgment. The ART filed a timely notice of appeal and theappeal is being briefed by the parties in the Second Circuit Court of Appeals.

 

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

 

Motorola Litigation

 

OnAugust 22, 2007, plaintiffs moved for summary judgment to disallow aportion of the defendants’ claims against certain Adelphia debtors. Plaintiffs’motion is pending. Discovery is ongoing and the bankruptcy court has orderedthe parties to be ready for trial on the claims for equitable subordination andequitable disallowance on October 8, 2009.

 

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

 

Sabres Litigation

 

OnFebruary 17, 2009, the District Court for the Western District of New Yorkissued a final judgment granting a permanent injunction against the prosecutionof fraudulent conveyance claims against Key Bank N.A., Fleet National Bank, andHSBC Bank USA, N.A. (collectively, the “Sabres Banks”) by the ART in the BankLitigation.    The fraudulent conveyance claims against theSabres Banks involve Adelphia’s purchase of and payments on certain loans madeby the Sabres Banks to the Buffalo Sabres hockey team.  The ART filed atimely notice of appeal, and the appeal has been briefed by the parties in theSecond Circuit Court of Appeals. Oral argument has not yet been scheduled.

 

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

 

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Litigation Indemnification Fund Litigation

 

Discoveryrelated to the JV LIF Claims is pending and an evidentiary hearing on themotion has not been set.

 

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

 

Item1A.                                                   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, 2008 as filed with the SEC March 10,2009.

 

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Item6

 
| **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 February 13, 2007                                                                                                      |
|         |       |                                                                                                                                                                                   |
| 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                                                                                                                                                        |

 

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*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 |

 

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**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: August 05, 2009                             |   |
|--------------------------------------------------------|--------|
|                                                   |   |
| By: Quest Turnaround  Advisors, LLC                    |   |
| as Trust Administrator of  the Adelphia Recovery Trust |   |
| /s/ Jeffrey A. Brodsky                                 |   |
| Jeffrey A. Brodsky                                     |   |
| Member                                                 |   |

 

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