Our reporters examine the impact of Altice France’s aggressive new stance.
Altice France‘s bonds have continued to slide this morning after the sell-off prompted by yesterday’s investor call, as advisors size up mandate opportunities due to the company’s new aggressive stance with creditors.
On the Q4 2023 call yesterday afternoon, management said it would be seeking “creditor participation” in discounted transactions to help drive leverage down below 4x, or face the “long road” of organic deleveraging. Altice France also guided for a mid to high single-digit decline in FY 2024 EBITDA, which with the new leverage target implies a ~€10bn mid-range debt reduction and chunky debt haircuts, according to analysts.
Leading French restructuring lawyers said creditors would need advisors, and they have been deluged with inquiries since the call. “The [creditor participation] announcement came out of the blue and was perceived as very aggressive – we have received numerous inbound calls,” said one lawyer. “Funds are now seriously concerned and I have been approached by several of them already,” said another.
Altice France’s secured bonds were down another two to five points this morning, with the January/February 2025 bonds falling more than two points to touch 90, and the 4.125% January 2029 notes more than five points lower at 70.625.
The unsecured bonds were also lower this morning; the 4% 2028s were more than three points down at 39.5. The 8% 2027s were the largest fallers yesterday, down than 16 points to 43, according to Bloomberg pricing data.
Meanwhile, the 2028 euro TLB is offered below 85 this morning, according to Solve Advisors, having been marked in the mid-90s before yesterday’s call.
One Overall Solution Sought
Altice France owner Patrick Drahi was not on the call yesterday. Instead director Dennis Okhuijsen warned about the need for creditor participation in discounted transactions such as exchange and tender offers. He suggested that the discounted transactions would be part of “one overall solution” to Altice France’s deleveraging needs, once its asset sale review is complete.
Okhuijsen said the company could get below 4x organically, but that this would take a long time. “The other option is that we continue to include all the unrestricted assets we have, but that will require the participation of the debt market to contribute to the deleveraging to get to the target,” he told callers.
Asked whether he could exclude any actions that would force some kind of debt impairment on creditors, Okhuijsen said he could not exclude anything.
Management said it was working on potential further asset disposals, including its XpFibre JV and a 49% stake in La Poste Telecom, which together could raise several billion euros.
Two other deals have been agreed, as reported, with Altice France last week striking a deal to sell its Media business to CGM Group (80%) and Merit France (20%) for €1.55bn cash, with closing expected during the summer. In November it also agreed the sale of a 70% stake in data centre company UltraEdge to Morgan Stanley Infrastructure Partners (MSIP) in a €764mn deal, with completion expected by June.
Altice France itself has used a large roster of advisors for its strategic review, including Lazard, Perella Weinberg, and BNP Paribas.
Burning Bridges
Altice France guided for a decline in FY 2024 total revenue due to the continued slowdown of construction activity and the residential market in France remaining competitive, and a mid to high single-digit decline in EBITDA. The company also forecast FY interest costs of €1.45bn.
Net leverage at end-2023 was 6.2x based on LTM EBITDA. Based on the mid-point of 2024 EBITDA guidance (i.e. a 7.5% drop year-on-year), reducing leverage to below 4x implies the need for €10.4bn of debt reduction using LTM EBITDA, according to our partner service CreditSights.
In a report after the call, CreditSights said Drahi had taken the opportunity to “burn his bridges with the bond market” on yesterday’s call. Head of
Telecom/Media Mark Chapman noted that Altice has presented a patient face in the past six months, touting a turn of inorganic debt reduction, with Drahi implying a split between assets sales/equity contributions (3/4 turn) and capturing a discount on the debt (1/4 turn).
“That has now gone out the window and instead a more radical plan was mooted, with bully-boy tactics now seemingly to be deployed to boss the market into doing Drahi’s bidding,” he said. “Talk of equity contributions (like Drahi himself) was conspicuous by its absence,” he added.
Chapman said creditors have a strong case to organise and push back. “We believe the underlying asset value is material – arguably breaking in the Altice France Holding senior notes, even without XpFibre – both in its own right and in the eyes of a potential strategic buyer. While very porous docs mean asset stripping is a risk, we expect there are a good number of potential creditors willing to take the keys from Drahi,” the report said.
The bond docs indicate that a €10bn disposal of XpFibre would not automatically lead to bond debt reduction, as XpFibre is classified as an unrestricted subsidiary. As our partner service Covenant Review explains, this means it is not subject to the asset sale covenant, but in a lender presentation last year, the company indicated that amended covenants under the term loans mean that asset sale proceeds, including from XpFibre, would be required to pay down debt. What is not yet clear to bondholders, though, is whether that includes any bond debt, and if so, how much.
Given the flexibility in most docs these days, it seems likely that Altice France can find sufficient wiggle room to do what it wants, sources suggest, with one manager voicing the view that there is no requirement to repay senior debt – though this has yet to be confirmed, while another said it is hard to be definitive.
Matt Dickinson
Senior Reporter
LevFin Insights
