Altice’s secured creditor group would prefer the struggling telecoms business to enter into a French conciliation process to negotiate a debt restructuring, which would help prevent attempts by Patrick Drahi to prime existing lenders, sources say.
A conciliation procedure is a pre-insolvency process, whereby the commercial court in France appoints a conciliator to help stakeholders reach a consensual restructuring agreement. If a deal is agreed between Altice and its creditors in conciliation, it could then be implemented via an accelerated safeguard procedure, the sources said.
Once a company enters into a conciliation process, it is very unlikely that a court would approve a priming move, the sources say – for example, for money raised against assets to be used to finance an exchange offer of Altice HoldCo debt, or to upstream the cash via a distribution of dividends or an upstream loan.
This comes after Altice reached out to Apollo and a number of other third-party funds last month to discuss a new-money financing, which could include raising money against some of the subsidiaries that have been designated as unrestricted.
“It would block Drahi from doing certain things with Apollo or others,” an investor said.
Altice tabled a counter proposal to the secured group last week, and asked for the SteerCo to become restricted, which would involve all parties in the SteerCo signing NDAs. Advisers on both sides have been in discussion since then, but the SteerCo is not yet restricted, the sources added.
Harder to prime
The secured group has however already been afforded some protection against a priming move via the 12-month extension of its co-op agreement until February 2026, according to CreditSights analyst Mark Chapman.
Chapman believes that there is still substantial scope “in theory” for a drop-down transaction that would prime secured lenders, but in practice the extension of the senior secured group co-op makes this much harder to pull off, he said.
To be effective, Chapman said the drop-down would have to be sizable – at least €4bn-€5bn, but likely materially more than that, “which is pretty hard to pull off without getting the institutions involved in the co-op to help provide the financing” – something that signing the co-op prevents them from doing, he said.
He also argues that using money just to repay HoldCo debt would be an unlikely move by Altice. “What SFR really needs is to maximise deleveraging, including at the secured level. So, realistically, a dropdown would likely need to target participation from secured lenders – at least over the longer term,” he said.
French law protection or not?
In general, directors’ duties under French corporate law make it harder for directors to facilitate a manoeuvre that is not deemed to be in the interest of the company they manage, especially in the case of insolvency. Sources say this should give some protection to the Altice secured group from being primed.
Directors have a duty to act in the interest of the company they manage, so when an asset is dropped down, the company distributing the asset must make sure it was in its own interest to do so, said one source – in particular, by making sure a market price will be paid for it, he said.
Conversely, the subsidiary that has an asset dropped down into it has to reimburse the value of the asset to the part of the business it came from, he said. One way to do this is by using the asset to raise money for capex purposes, or for growth, which provide revenue with which to repay it. If money raised is instead upstreamed to the HoldCo, this would not be in the best interest of the subsidiary receiving the asset.
“There would be huge execution risk trying to do such a deal, as it would be challenged by the creditors under French law,” said another source. If the challenge is successful, not only would the subsidiary lose the assets, which would be transferred back, but also the creditors who financed the subsidiary “would see their own collateral vanish,” he said.
Others are less certain. In the case of insolvency there has to be a ‘high standard of proof”, said a lawyer, that there has been mismanagement and that it led to the shortfall of assets in a liquidation. “Generally this type of directors’ liability is not a major concern,” he said.
In the case of Altice, he considers the group too big to fail – in line with Casino and Atos – so feels that a liquidation and future claim of mismanagement under directors’ liability seem unlikely at this stage.
Sandrine Bradley
sandrine.bradley@levfininsights.com
+44 (0)20 3530 1878
Richard Budden
richard.budden@levfininsights.com
+44 (0)20 7280 9691
