Altice France on collision course with creditors

Altice is on a collision course with creditors to its French telecoms business, after the heavily indebted group angered bondholders with proposed haircuts on the value of their debt.

Altice France’s bond prices fell sharply to distressed levels on Wednesday in the wake of the telecoms business’s management telling a bondholders’ call of more aggressive debt reduction targets and raising the prospect of impairments to achieve them.

Altice France, which includes mobile network operator SFR, is a key part of Franco-Israeli billionaire Patrick Drahi’s wider Altice group of telecoms businesses.

The indebted group, which spans the globe from Israel to the US, was shaken when Drahi’s longtime lieutenant Armando Pereira was arrested by Portuguese investigators in July as part of a corruption probe. That inquiry plus rising interest rates that have pushed up the cost of Altice’s heavy debts have forced Drahi into asset sales and various moves to refinance.

Some of Altice France’s bondholders have now hired debt restructuring advisers Houlihan Lokey and law firm Millbank, according to the creditors, in a bid to engage with the company and push back against the prospect of severe debt writedowns.

Altice did not reply to a request for comment.

One person involved in the creditor group said it had been set up prior to Wednesday’s bondholder call, but that management’s remarks had given it fresh impetus.

The group is composed of mainstream asset managers and distressed debt hedge funds that hold secured and unsecured debt of Altice France. Bloomberg first reported on the group’s creation.

Altice France’s bond prices had previously been buoyed by news last week that the company had agreed to sell its media business for over €1.5bn, following an agreement in November to sell a majority stake in its data centres.

But on a full-year results call with bondholders on Wednesday, management said the assets would be designated as “unrestricted subsidiaries”, meaning that proceeds from the disposals do not have to be used to repay debt.

Bondholders were then told that the company had set more aggressive debt reduction targets, according to a public recording of the conversation.

Altice France said it had previously pledged to reduce net debt to about 5 times adjusted earnings, from 6.4 times currently. But Altice executive Dennis Okhuijsen then unveiled a “new target” of “well below 4 times”, adding that “creditor participation in discounted transactions” would be required to achieve this.

Asked by one bondholder whether Altice could rule out forcing creditors to take part in these proposed debt impairments, Okhuijsen replied: “I don’t think we can exclude anything” and that “if you do the math” then some debt reduction “needs to come by discount”.

The comments wrongfooted bondholders, many of whom had expected a more conciliatory approach, believing that Altice needed to keep creditors on side to tackle a debt pile of more than $60bn.

The price of Altice France’s unsecured bonds fell more than 20 percentage points during the bondholder call, to trade at less than half their face value. One Altice bondholder said they thought the company had intentionally “torched” its bond prices, adding that driving the value lower could be a ploy to impose steeper haircuts on bondholders.

While the loose terms of Altice’s bonds and loans give the company broad latitude to sell assets without repaying debt at face value, some bondholders believe that the company can still be persuaded to take a more amenable approach.

“Lenders know that they’ll have to give away some value, but we’re trying to engage in something more constructive,” said one person involved in the bondholder group.

The person noted that creditors to US telecoms firm Dish recently managed to block an aggressive debt restructuring by banding together and signing a co-operation agreement.

Altice France has just over €20bn of secured debt and €4bn of riskier unsecured debt that does not have a direct claim on its assets. Debt investors have grown nervous about the prospects of unsecured bonds in French restructurings, after holders of this class of debt took near-total losses in a restructuring at food retailer Casino last year.