(Pitchbook) Altice France cuts debt pile without spooking market
27 Feb 2025 15:52 GMT
Jean-Marc Poilpre
Altice France struck a deal with its creditors this week, managing to appear almost magnanimous after months of bitter negotiations. Fears of an overly aggressive liability management exercise have not materialized.
With €25 billion of debt involved, Altice France’s restructuring is the “largest restructuring in the world over the past year and one of the largest in Europe historically,” according to Gibson Dunn, legal advisors to about 180 senior secured creditors.
The restructuring is highly unusual for France because a large part of the bonds were listed in New York, and Altice’s founder and owner, Patrick Drahi, sought to divide creditors, a lawyer away from the deal commented. In his view, the turning point was when secured creditors decided to speak with one voice and signed a cooperation agreement.
“From that moment, Drahi lost momentum,” he said.
Some €7.9 billion of debt is being “eliminated,” as Altice’s press release puts it. This includes €4.4 billion of secured debt and €3.5 billion of unsecured debt. The €8.6 billion mentioned by Altice in the press release includes some debt repayments made in January and February. In absolute terms, this is the largest debt reduction in France’s recent history, but as a proportion of total debt, the restructurings of Orpea, Atos and Casino went further.
Under the restructuring plan made public Wednesday morning, holders of the Altice France SA debt will receive 31% of Altice France’s common equity, while holders of the junior Altice France Holding SA debt will receive a 14% stake. The existing shareholders will keep majority control.
According to Adrien Laheu, senior credit analyst at Spread Research, the recovery rate (excluding equity stake) for secured debt is 87% and 25% for unsecured notes, which is better than anticipated. Reaction in the secondary market was positive, with Altice France’s securities gaining several points.
Altice France Holding creditors have achieved a more generous deal than expected given their precarious position in the capital structure, noted Tomas Mannion, senior analyst at Sarria, in a quick take published just after the announcement.
Moving on
The relatively benign outcome means that some market participants have already moved on, focusing instead on the company’s post-restructuring debt ratios and capex needs.
The market does not care that much anymore, an investor commented. He added that the outcome is certainly good for some bondholders, but people now want to know how the telecom operator will tackle its key challenges, namely delivering an operational turnaround and investing massively.
Mannion pointed to the relatively high leverage ratio of 4.6x post-transaction, based on a provided pro forma adjusted full-year 2024 EBITDA number.
Spread Research projects that the company’s free cash flow (FCF) will be around breakeven by full-year 2026, “which, in our view, is insufficient following such a restructuring.”
But the restructuring process itself will keep Altice busy for quite a while. The telecom operator expects to implement the transaction over the course of the second quarter to the fourth quarter. The more debtholder support, the more compressed the timeline will be. Altice France is confident it can easily achieve the two-thirds needed to implement the restructuring plan, but the target is to reach 90%, which would allow the whole process to move faster, a source close to the deal said.
Altice said the transaction is supported by all members of the Altice France SA (senior secured) and Altice France Holding SA (junior)'s creditor steering committees, which hold 55.0% of the debt outstanding at Altice France SA and 51.2% of the debt outstanding at Altice France Holding SA. Altice is launching a solicitation for creditors to accede to the relevant framework agreement and provide binding consents to support the transaction. The deadline for acceding is March 12, but it can be extended by five days. Some 90% of Altice France's secured debt holders are bound by a cooperation agreement until February 2026.
In the case of Altice France SA, a French accelerated safeguard combined with a US Chapter 15 bankruptcy requires the support of over two-thirds of the senior secured notes and TLB in value. If 100% of the RCF and OpCo TLB lenders and over 90% of the senior secured noteholders give their support, the implementation could be done via a court-approved French conciliation.
Regarding Altice France Holding SA, the restructuring could be implemented through a Luxembourg judicial reorganization or US Chapter 11 bankruptcy. Altice and the senior secured noteholders would discuss an “alternative transaction” that does not require the consent of the junior debtholders if support is below two-thirds.
XpFibre back
In March 2024, Altice announced during a conference call that it was aiming for a new leverage target well below 4x, which was to be achieved through debt haircuts and using proceeds from assets redesignated as unrestricted. This was news to bondholders, and a sell-off ensued. The uncomfortable truth is that Altice’s bond documents allowed the company to move assets beyond the reach of bondholders, and it had done just that.
When a round of negotiations between Altice France's management and creditors officially came to an end in November 2024, secured creditors demanded that Altice add a paragraph in the cleansing notice stating that the equity interests in XpFibre, a fibre-to-the-home infrastructure operator, were now held by a lateral affiliate of the company, which was not part of Altice France’s restricted group. In the statement, Altice France’s management said it did not believe this item was material.
XpFibre features in the agreement disclosed on Wednesday, located within Altice France SA’s restricted group as a post-transaction debt guarantor. XpFibre was also mentioned in the leverage calculation. Altice gave two net leverage numbers: 4.6x, which is a pro forma, excluding the sale of XpFibre and other non-core assets, and “below 4.0x”, pro forma inclusive of the sale of non-core assets. To put things in perspective, at the end of September 2024, Altice France’s net leverage ratio was 6.8x, based on consolidated pro forma LTM EBITDA of €3.49 billion.
Spread Research’s Adrien Laheu expects Altice France’s net leverage to increase from 4.6x to 4.9x by the end of 2025 due to EBITDA decline and FCF burn throughout the year. But he noted that the company has the potential to further deleverage through the disposal of XpFibre and other non-core assets, “which looks to be framed by the debt documentation.”