Article/Intelligence
Five Lessons From the Altice France Saga to Navigate Europe’s Liability Management Landscape
- Documentation flexibility matters and could have a direct outcome on the negotiating dynamics and final terms of a deal.
- Temporal seniority can be a significant advantage. The (not so simple) trick is to be able to judge when a hard restructuring will likely be triggered.
- Cooperation agreements have emerged as a significant weapon in the creditors’ defensive arsenal aiming to limit the debtor’s ability to divide and conquer.
- Stressed companies will likely start assessing liability management exercise, or LME, options earlier than before as the threat of an LME is likely to be more effective when there is no cliff-edge insolvency trigger.
- For certain types of LMEs, the risk may be elevated under New York law governed bonds when compared with English law governed facilities agreement.
Lets start with a quick recap of how the Altice France saga unfolded.
While Altice France had been on our stressed monitor for a while, the situation was relatively calm (and perhaps there was even a hint of optimism) as the company announced a number of asset disposals in the final quarter of 2023 and the first quarter of 2024, agreeing to sell a 70% stake in its datacenter business UltraEdge, 100% of Altice Media and its 49% stake in La Poste, even while a bidding process continued for Xpfibre.
Then, a little over a year ago, Altice France shattered this calm when, during its fourth-quarter 2023 earnings call, it said that creditors participation in discounted transactions is required to achieve its new net leverage target of well below 4x.
To show that the threat was real, Altice France also stated that it designated UltraEdge and Altice Media as unrestricted subsidiaries dashing investors’ expectations that proceeds from the recently announced disposals would be used to repay debt and deleverage conventionally without resorting to a coercive liability management transaction. Unsurprisingly, markets reacted badly with Altice France’s senior notes dropping almost 20 points. Shortly thereafter, Moody’s and S&P downgraded the credit rating of Altice France and Altice France Holdings.
Within days of the shock announcement,a string of restructuring advisors were appointed with Altice France turning to Lazard and JPMorgan, senior secured creditors organizing with Gibson Dunn and subsequently appointing Rothschild, and junior creditors organizing with Milbank and Houlihan Lokey. The first step for advisors for both the senior and junior creditors was to coalesce their creditor groups around cooperation agreements, a relatively new phenomenon in Europe, with the aim to avoid splitting of their respective creditor groups by the company.
Then, keeping in mind its banking relationships, the company lent a helping hand to some of its relationship lenders pushing down the junior RCF at Altice France Holdings SA to Altice France SA.
With everyone’s ducks seemingly in a row after the initial panic, in June 2024 Altice finally approached creditors to gauge the viability of a potential liability management exercise, even floating the idea of a voluntary liability management exercise, or LME, at a 20% discount for its secured creditors. In July 2024, Altice France approached creditors again and suggested repaying its secured creditors at “above market prices”. Not to be deterred, in August 2024, secured creditors sent back a counter proposal raising the possibility of billionaire owner Patrick Drahi losing control of the French business. Negotiations were well and truly underway.
Meanwhile, the Altice Media sale closed with Altice following through on their threat to keep the cash away from the creditors, while on the other hand the sale process of XpFibre stalled over valuation concerns. Altice’s controlling shareholder Patrick Drahi also accelerated his global selling spree, agreeing three multi-billion dollar deals in August 2024, including the sale of Altice UK’s 24.5% stake in BT Group plc, a minority investment in Sotheby’s (majority-owned by Drahi) and the sale of Teads (a subsidiary within the Altice International silo) leaving the market guessing as to what he would do with the proceeds.
Recognizing this wasn’t a sprint and their best interest lay in staying together, secured creditors agreed to extend the cooperation agreement.
Further proposals and counter-proposals continued in the autumn with all parties seemingly coming up for a breath of fresh air in mid-November 2024 via a cleansing statement showing the progress made to date, but there was a way to go before a meeting of minds. The senior secured steering committee went private again and a further round of negotiations followed either side of Christmas.
Amid the back and forth, in January and February 2025 Altice France repaid its outstanding senior secured notes due 2025, which the market had come to expect.
A final flurry of negotiations followed in February leading up to an announcement that the company had reached an agreement on restructuring terms with with a group of holders of its term loans and senior secured notes, that would eliminate around €8.6 billion of term debt and bringing consolidated net debt to €15.5 billion, while extending its maturities to between 2028 and 2033. Perhaps, most significantly, the deal would leave Patrick Drahi in control. A short-lived brouhaha from some disgruntled Altice France bondholders holding the company’s long-dated senior secured notes failed to gain much steam.
And to bring you fully up to date, on March 17, the company announced that over 90% of creditors provided binding consents to support the transaction seemingly taking a lot of the execution risk off the table and on March 28 it announced the opening of conciliation proceedings by the President of the Commercial Court of Paris to implement its refinancing transaction.
Hope this has brought you up to speed on the past year’s events. They say hindsight is 20/20, so we’ve tried our best to glean some of the most significant lessons from the saga and distill it into the five takeaways below.
For years, Altice France was considered by bond and leveraged loan investors alike to be a safe bet. What could possibly go wrong with the number two telecommunications company in France? Documentation and covenant flexibility was therefore largely ignored, with investors in the primary market instead focused on pricing, and even competing to get their desired allocations.
Founder Patrick Drahi’s ability to retain a controlling equity stake in the company even while creditors are forced to take big haircuts upends one of the key principles of credit investing, that is creditors should not suffer losses before the equity is wiped out. In the ultimate analysis, this shattering of basic principles boils down largely to covenant flexibility. In particular, Altice France’s huge investment capacity allowed it to drop down its UltraEdge and Altice Media businesses so that they were out of the scope of the restrictions in the documentation and beyond reach of its creditors, in addition to its XpFibre business which was already outside the restricted group. Investment capacity is needed to drop down assets to unrestricted subsidiaries and we estimated Altice France had at least €16 billion of such capacity even after these drop downs. Moreover, the implied threat that these assets (or cash from agreed sales of these assets) could be spun off to the shareholder bypassing Altice France’s creditors in the process, and potentially even re-contributed back as equity, was enough to drag creditors to the table. Had this flexibility not been available it is very plausible that negotiations dynamics and the final economic outcome of the deal may have been different.
If you are keen to get into the specifics, we did a deep dive into the key baskets that could build capacity to designate unrestricted subsidiaries and what that means for creditors HERE, noting that Altice France’s flexibility was not a one-off and could set the tone for similar drop down transactions by stressed companies.
In particular, we found that the source of a significant amount of Altice France’s capacity to designate unrestricted subsidiaries was the loophole in its restricted payments builder basket which allowed it to access the basket to make investments (as opposed to any other types of restricted payments such as dividends, sharebuy backs and prepayment of subordinated debt) even when it was not in compliance with its ratio debt incurrence test. A search on our Market Maker database revealed that the same flexibility was present in a number of sponsor and non-sponsor European high yield bond deals, with the breakdown for deals in each year since 2018 represented in the graph below.
This ratio debt test usually serves as a proxy for a credit health test to ensure that restricted payments capacity is not available to stressed or distressed issuers. That said investors have generally been more willing to accept a higher capacity (and lower hurdles) for investments compared with other restricted payments on the basis that an investment creates an asset and therefore could be accretive to the restricted group, whereas with other forms of restricted payments such as dividends, the cash or asset has left the group without any corresponding benefit to the creditors. The flaw in this argument has now been laid bare for all to see.
When the news first broke, several participants expressed hope that French corporate and insolvency law principles would come to their rescue and that the company’s directors would not risk potential liabilities. Alas, as we predicted HERE when we articulated that absent wilful mismanagement, fraud or a failure to file for insolvency at an appropriate time, the protections appear quite weak, director duties did not completely save the day. The fact that no one initiated litigation against any of Altice France’s actions to designate unrestricted subsidiaries is perhaps the best evidence of this.
One reason for that is that the outcome of corporate and insolvency laws is highly fact specific depending on a number of factors that are often yet to be determined, such as whether the group will become insolvent within a hardening period after the challenged action (after which they are unlikely to be voided). While we do not completely discount protections afforded by corporate and insolvency laws, as a result of the inherent uncertainty involved in challenging a transaction on this basis, we think documentary flexibility will at least get creditors to the table as a first resort.
Altice France’s pre-restructuring bond documentation did not include a J.Crew blocker (or for that matter other lender protections now more commonly seen in the market such as a Chewy or Serta blocker) and it is no surprise that its shenanigans led to a sharp spike in J.Crew blockers being introduced in European leveraged loan and high yield bond deals as reflected by the graph below.
Ironically, however, a traditional J. Crew blocker would have had little to no impact on the Altice France drop downs. This is because the majority of such J. Crew blockers only prohibit the transfers of material intellectual property to unrestricted subsidiaries (including via designations of restricted subsidiaries as unrestricted) and do not deter the transfer of other material assets. The assets dropped down by Altice France comprising media and data center assets would likely not be caught by such a prohibition. Investors should therefore be alert to the fact that a J.Crew blocker is not a “one size fits all” answer to drop downs. While limiting it to material intellectual property may work well for some businesses, it may not provide adequate lender protections in other instances. We have suggested ways to enhance protections against drop downs in Europe HERE.
More generally, lender protections included in documentation for performing companies accessing the primary market have typically been reactive – offering some, but often narrowly drafted, protection that is far from airtight. On the other hand, as we compared HERE, documentation for companies executing a liability management transaction (“post-LME documentation”) have typically been more all encompassing (at least in the U.S. where the vast majority of such transactions have taken place).
Investors in primary deals may want to take a leaf out of the book of the post-LME documentation and not wait for a worst case scenario to play out, but the fact that such a dichotomy exists even after a wave of liability management transactions is telling and evidence that this is easier said than done. Sponsors recognize that documentary flexibility gives them optionality in stressed situations and therefore do not want enhanced lender protections creeping into their precedents when they still have the bargaining upper hand.
From the very beginning of the saga, Altice France’s 2025 senior secured bonds traded at widely different levels from the rest of the pack.
We explained how debt instruments in a capital structure rank against each other and the different types of seniority, including contractual, structural, effective and temporal seniority, HERE. Generally, all debt secured on a first lien basis on the same collateral should rank equally and trade at similar levels.
So why did Altice France’s 2025s trade so differently?
This comes down to the effect of temporal seniority, which in simple words means that debt that matures first gets paid first. While temporal priority disappears in an insolvency process with equal ranking debt generally being treated the same, creditors with temporal seniority often have stronger bargaining power against the debtor which could be used to improve their position in a liability management transaction vis-a-vis other equally ranking creditors. This relatively strong position is based on a bet that a stressed issuer and its shareholders are incentivized to try and find solutions outside of a restructuring process where they stand to lose more (or everything). This enhances the likelihood that the temporally senior debt will get paid off before a restructuring is triggered. That is exactly what happened with Altice France with the debt due 2025 being repaid at par barely a few weeks before the larger deal was agreed with other creditors.
While this might sound simple in theory, it is much trickier in practice as it needs one to take a view on when a hard restructuring will likely be triggered – coming out on the wrong side of that bet can be expensive!
We have explored the impact of temporal seniority in liability management transactions in more detail HERE.
Faced with ultra-loose documentation and a rise in creditor-on-creditor violence, creditors have naturally been on the defensive and in damage limitation mode trying to ensure that they do not become the victims of such violence. But as they say “necessity is the mother of invention” – the invention here being the cooperation agreement which has emerged as one of the most significant weapons in the creditors’ defensive arsenal by significantly limiting the debtor’s ability to divide and conquer creditors. We discussed the nature of cooperation agreements in detail HERE.
We also prophesied early on HERE that the outcome of the Altice France situation would be determined by the success of the cooperation agreement stating: “We recently reported on preparations by an ad hoc group of Altice France’s secured creditors to sign a cooperation agreement. The outcome of these negotiations and the nature, scope and longevity of such an agreement will be vital in determining whether creditors are able to stick together in this fight.” While there have been rumbles over the efficacy, enforceability and even legality of cooperation agreements, they (along with our prediction) appear to have withstood the Altice France test.
Of course, cooperation agreements are themselves evolving, now coming in different shapes and sizes and with different use cases as we discussed HERE. They also have their own intercreditor dynamics to contend with and in some cases may not even treat all lenders in the group equally. However, it does take considerable power away from the sponsors and put the ball back in the court of the creditors, likely leading to a better outcome than if they were at the wrong end of creditor-on-creditor violence. Unless of course you are temporally senior!
Without an imminent refinancing or liquidity trigger, it appeared that Altice France fired the first shot rather early. In hindsight that made a lot of sense giving Altice France the luxury of time in protracted negotiations with its creditors. The threat of an LME is likely to have more bite if the company is not staring down the barrel of an imminent insolvency trigger which could put the creditors in the driving seat. As LMEs become more prevalent we think this trend will continue and an increasing number of stressed companies are likely to assess their options relatively early on. The recent news around Cerba potentially looking at its options without any imminent triggers which caught the market off guard is another case in point.
This one is a bit of an extrapolation from the overall European liability management scene, but it deserves a mention here because Altice France has probably been its chief protagonist so far. The other key examples of the new wave of European LMEs relying on techniques imported from the U.S. have been Ardagh (another cross-border credit which initially executed a pari plus transaction last year and recently announced details of ongoing discussions to execute a follow on consensual transaction with bondholders), Oriflame (the stressed beauty company which recently reached an agreement with creditors following a drop down of assets last year) and Hunkemoller (the Dutch retailer which made the headlines for a Serta style uptiering transaction never before seen in Europe and one that is currently being litigated in New York courts).
What is common between these companies is that all of their capital structures were predominated by New York law governed debt. Is that a mere coincidence or a more telling trend? We think the answer is not black and white.
New York law bonds issued by European companies had historically been significantly looser than English law governed facilities agreements giving issuers much more flexibility when it comes to liability management transactions such as drop downs. However, as evidenced by several of the trends highlighted in our 2024 wraps available HERE (for high yield bonds) and HERE (for leveraged loans), English law facilities agreements have more than caught up in recent years with many adopting high yield style covenant packages, with these provisions in fact often separately being governed by New York law. That likely eliminates the difference between New York law and English law governed debt of a more recent vintage when it comes to drop down transactions (or the threat of them) where flexibility is baked into the debt terms and no creditor consent is needed.
However, there still appears to be an elevated risk under New York law instruments when it comes to uptiering transactions. These transactions revolve around two key elements: (1) consent of the requisite majority to introduce a super senior tranche and (2) ability to exchange existing debt of participating creditors for the new super senior tranche on a non-pro rata basis. Arguably English law credit agreements have better protections than New York law bonds in both of these respects.
Bonds lack the type of pro rata sharing provisions typically seen in loans. As a result, unlike loans (where an exception has to be found) bonds permit non-pro rata repurchases without restriction. In fact, it has become very common for bond issuers to include disclosure in offering memoranda specifically disclosing that the issuer may engage in open market purchases or privately negotiated purchases. Moreover, the “Payments for Consent” provision requiring the same consideration to be offered to all bondholders who consent to an amendment, which until a few years ago was relatively standard in European high yield bonds, is seen only rarely now. A search on our Market Maker database reveals that only 5.6% of European high-yield bond deals included this provision in 2024, declining from 23.7% in 2018. If included and adequately drafted, in theory this provision could prevent a non-pro rata exchange, although it suffers from a glaring circular weakness – the provision can in most cases itself be amended by a majority of lenders.
On the other hand, English law facilities agreements usually provide for pro rata application of any prepayments and sharing among lenders of the same tranche. Yet, various alternative processes are often included in such facilities agreements for permitted buybacks of loans that are not caught by the pro rata requirement. These are known as “debt purchase transactions” and more often than not include relatively well fleshed-out mechanics (at least compared with the undefined “open market purchase” and “purchase” concepts that were at issue in the Serta and Mitel decisions dished out by U.S. courts) in the form of a solicitation process and / or open order process, both of which are competitive processes where bids are solicited from or offers made to all of the lenders – in other words they do not permit a non-pro rata exchange. In addition, some deals limit the source of funds that could be used for such debt purchase transactions. However, a number of European deals also allow for debt purchases transactions via a bilateral process, independent of a solicitation or open order process, where the borrower may purchase debt by negotiation with any individual lender – if included this would permit a non-pro rata exchange. In a search on the Octus Representative Loan Terms, or RLT, database, of the 181 unique EMEA leveraged loans that we reviewed between 2022 and 2024, 42 of them (23%) either expressly included a bilateral process, independent of a solicitation or open order process, or did not require a particular process to be used for debt purchases. Still, the relative majority of deals will not permit non pro-rata exchanges of debt which is the first line of defense.
One point to note is that it is quite often the case that the provisions governing debt purchase transactions are not included in the “sacred rights” and can therefore be amended by a majority of lenders. This could potentially open the door for non-pro rata exchanges even when the original terms of the facilities agreement do not permit this, since the requisite majority can in any event amend the agreement to allow for debt purchase transactions to occur via a bilateral process.
With respect to the ability to introduce new super senior debt, New York law bonds issued by European companies typically do not include amendments to payment or lien ranking or the intercreditor waterfall as a sacred right requiring 90% bondholder consent. Instead, these provisions can be changed with consent from a simple majority of bondholders. In addition, several New York law bond structures that do not include a term loan will have a super senior revolving credit facility therefore already allowing super senior debt. The quantum of this debt is typically able to be increased by a majority of bondholders.
On the other hand, although this needs to be analyzed on a case by case basis, English law facilities agreements tend to do a better job at requiring all lender consent for such amendments. That said, broad exceptions are quite often included to this requirement (such as an amendment in connection with a structural adjustment or incurrence of an incremental facility or incremental equivalent debt), which could muddy the waters. Further, many facilities agreements leave scope for altering, with mere majority consent, the payment waterfall in the event of a partial payment that is insufficient to pay the full amounts due under the facility. This could create another avenue for uptiering by allowing a new “first out” tranche under the facilities agreement. Still, something is better than nothing.
Some of these distinctions fall away if we compare English law facilities agreements with their New York law counterparts (as opposed to bonds), but because only a small minority of companies in Europe will have New York law governed facilities agreements we have left that for another day.
Apart from the arguably better documentary protection, another major factor influencing the ability to execute an uptiering is the uncertainty around the validity of “exit consents” in the U.K. following the 2012 Assénagon case, which established the “abuse principle” in English law and has caused them to be used conservatively ever since. The case established that it was not “lawful for the majority [of creditors] to lend its aid to the coercion of a minority by voting for a resolution which expropriates the minority’s rights under their bonds for a nominal consideration.”
The “abuse principal” is often cited as a factor by market participants as to why there are fewer LMEs on this side of the pond because an uptiering transaction will by its very nature require a requisite majority to consent to the transaction at the expense of the non-participating minority. While Assénagon involved an extreme example making it difficult to determine where the line between abusive and non-abusive exit consents should be drawn, it does present an additional hurdle for stressed companies and their advisors to overcome.
Barring any extraordinary circumstances, it appears season 1 of the Altice saga is finally drawing to a close. For those hooked on, we don’t think you should despair too much. The producers of this show probably have some other great ideas for future seasons in mind (spoiler alert, Altice International and Altice USA bonds share some of the loopholes we have described with respect to Altice France) and in any event they’ve potentially created a marker for others to follow. With the tariff related upheaval likely to increase stress in the market in coming weeks and months, all of us could probably use some of the lessons learned as we look forward to the future.
As you have probably figured out from the number of links embedded in this article, Octus’ coverage of the Altice France situation has been extremely thorough. We have covered almost every base, often being the first to break news and market intelligence, publishing incredibly detailed financial analyses and insightful covenant and restructuring analyses. We hope this holistic view has helped inform your views on the credit.
In case you are interested in revisiting these, the below is a short list of the key covenant and restructuring analysis articles (plus podcasts and webinars) published by Octus’ EMEA Covenants while covering this story.
We have also analyzed the terms of the new senior secured debt as contemplated by the framework agreement, which is available upon request.
Will Altice France’s Shareholder, Drahi, Risk Losing Equity in an Accelerated Safeguard?
Will Altice Creditors Be Protected by French Law Directors’ Duties and Avoidance Challenges?
RX101: Will European Directors’ Duties Protect Investors Against Value Leakage?
Reorg Special Podcast: Altice France – Creditors Mobilize as Drahi Tries to Wield the Stick
Webinar Replay: Drahi’s Coup de Theatre or Fair Deal for All? Unpacking the Altice France Workout