Altice International - maintaining the snooze function

All,

Please find our updated model on Altice International here.

We maintain our 3% long position in Altice International Unsecured bonds, which at current levels, yield 11%. This remains a high beta name, but after the Q3 call, the refinancing/extensions of their term loans and separate discussion with the Company, we maintain our view that Altice International will reduce leverage in the coming quarters. The Company are proactive in their liability management but we expect the story of Altice International will be one of marginal operational improvement for FY23 and FY24.  


Positioning:

- Altice International report their leverage at 4.5x, although we are showing 5.4x adjusted for their pension liability and on-balance sheet finances leases. Our DCF demonstrates a conservative 5.3x valuation which is broadly in line with our leverage calculations. However, this valuation excludes any value assigned to the Altice UK asset (the loan to Altice UK secured and covered by BT shares), the in-the-money swaps and the remaining receivable from Morgan Stanley in relation to the FastFiber asset sale in FY19.

- We entered into our position mid-November at 73%, currently up 5 points, on the expectation that a refinancing would occur.  

- We maintain our position into the new year but acknowledge the name is a proxy for the wider European High Yield market. The relative size of Altice International and Altice France constrains the upside in the bonds. 


Altice UK Srl loan:

- Although this loan is now part of the security package of Altice International debt, very little information is disclosed concerning the underlying asset. It is known to be secured by BT shares, but the level of asset coverage is unknown. Management alluded that it is fully collateralised and would need to be written down if the asset coverage (BT shares) didn't cover the outstanding amount of the loan. However, the market is not aware of how the rest of the BT share acquisition was funded and what covenants/conditions attach to other financings.


Recent Results and Refinancing:

- Management have reiterated their mid-term guidance of EBITDA less CAPEX to be in excess of €1bn p.a. and target leverage to remain at 4.0-4.5x.

- More importantly, Altice International extended the maturities of a large portion of its Term Loan debt which was maturing in FY25 & FY26. Maturity of €1.7bn of their €2bn Term Loans was pushed out to October 2027, and an additional €400m of debt with matching maturity was raised from excess demand which will be used for debt repayment. Altice funding has increased to 500bps spread versus historic 275bps, but this is lower than where the equivalent pari-passu public bonds trade.  


Model Changes:

- We have made limited changes to the model since our update straight after the Q3 numbers. 

- However, we have separated out the pension contributions of €100-120m p.a. in our model to make it easier to visualise. We would expect this number to come down over time, as the pre-retirement ex. employees reach retirement age. But at the moment we have left it at €120m p.a.

- The other change we have made is in relation to the dividend to the minority shareholder, Morgan Stanley Infrastructure Fund. Management have indicated this is in the region of €60-70m per annum, although this looks high compared to historic levels. We have modelled €68m p.a. but are seeking to clarify with the Company the exact mechanism for the dividend.  


Happy to discuss.  


Tomás