Struggling Telecom Giant Altice Europe NV Looks to Borrow €500 Million
Introduction
Altice Europe NV, the struggling telecoms group founded by Franco-Israeli billionaire Patrizio Drahi, is seeking to borrow €500 million from investors. This move marks the company’s first attempt at tapping into the debt markets since one of its senior executives was arrested as part of a corruption probe. Altice has faced growing concerns about its €60 billion debt burden as interest rates rise. The scandal involving the co-founder Armando Pereira, who was placed under house arrest in Portugal, further exacerbated these concerns
Altice’s Debt-Fueled Acquisitions Raise Worries
Altice, under the stewardship of Patrizio Drahi, has aggressively expanded its operations through a series of debt-fueled acquisitions over the past decade. However, the company’s massive debt load has become a cause for concern, especially as interest rates continue to climb. This has led to doubts among debt investors and prompted Altice to explore alternative funding avenues.
Corruption Probe Adds to Altice’s Woes
The recent arrest of Armando Pereira, Altice’s co-founder, in connection with a corruption investigation has further spooked debt investors. The criminal inquiry is focused on allegations of collusion by senior executives to manipulate Altice’s procurement processes, with hundreds of millions of euros believed to have been illicitly diverted. In response, Altice has suspended several other senior executives globally. Pereira, however, vehemently denies any wrongdoing.
Altice International’s Loan Plans
Altice International, one of the telecom giant’s three main divisions, has announced its intention to borrow €500 million on the leveraged loan market. This loan will be used to repay bonds maturing in 2025. Altice International is considered to have the strongest credit profile among the three divisions, with a net debt-to-EBITDA ratio of 4.8 times. In comparison, Altice France has a ratio of 5.2 times, and Altice USA stands at 6.7 times.
All-Inclusive Annual Cost and Interest Rate
Altice is attracting investors with an interest rate of 5 percentage points compared to the variable reference rate. Additionally, investors are being offered a discount on the nominal value of 96 euro cents on the four-year loan. While this may seem appealing, it effectively means a double-digit all-inclusive annual cost for Altice. Leveraged loans are predominantly purchased by institutional investors and collateralized loan obligations.
Raising Funds through Asset Sales and Share Offerings
In addition to exploring borrowing options, Patrizio Drahi is also considering selling assets and shares in Altice to raise funds. The telecom group is reportedly looking to raise approximately €3 billion through the sale of a minority stake in Altice France. Financial investors are seen as the most likely buyers rather than rival telecoms companies.
Investment Banks Assisting in Asset Sales
A number of investment banks, including Lazard, Goldman Sachs, and Morgan Stanley, have been engaged to explore potential sales of Altice’s data centers in France, telecoms operations in Portugal and the Dominican Republic, and video advertising firm, Teads.
Addressing Investor Concerns
Following Pereira’s arrest and the impact it had on debt investors’ confidence, Altice management has made efforts to alleviate concerns about the sustainability of its €60 billion debt. Patrizio Drahi himself has been meeting with major lenders, reassuring them about the company’s financial health. In a recent call with investors, he described the alleged fraud as “a shock and a huge disappointment.” Nevertheless, he affirmed his determination to address the group’s upcoming deadlines and reduce the debt burden.
Unique Insights: The Road Map to Debt Reduction
While Altice’s debt remains a significant challenge, Patrizio Drahi sees market consolidation as a potential solution to ease the competitive pressure and improve profitability. French telecoms, in particular, have been engaged in a “price war” that Drahi believes is beginning to abate. In a recent “fireside chat” with Goldman Sachs, he outlined his roadmap for reducing Altice’s debt and pointed out the likelihood of further consolidation in the sector.
Conclusion
Altice Europe NV’s decision to borrow €500 million from investors marks an important milestone as the company seeks to address its massive debt burden. The recent corruption probe and the resulting arrest of a senior executive have exacerbated concerns among debt investors. Altice is exploring various options, including asset sales and share offerings, to raise funds and reduce its debt. Through their proactive response and engagement with lenders, Altice’s management aims to restore confidence and ensure the long-term stability of the telecom group.
Summary
Struggling telecoms group Altice Europe NV is seeking to borrow €500 million from investors, marking its first foray into debt markets since one of its senior executives was arrested as part of a corruption probe. The recent scandal and concerns over Altice’s €60 billion debt burden have prompted the company to explore new funding avenues. Altice International, one of Altice’s main divisions, plans to borrow the funds to repay maturing bonds. Despite the challenges, Altice is actively addressing investor concerns and exploring various strategies, including asset sales and share offerings, to reduce its debt and ensure its long-term stability.
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Struggling telecoms group Altice is looking to borrow 500 million euros from investors, marking its first foray into debt markets since one of its most senior executives was arrested as part of a corruption probe.
Franco-Israeli billionaire Patrizio Drahi has assembled Altice through a series of debt-fueled acquisitions over the past decade, but concerns have grown over its $60 billion in borrowings as rates have risen. The scandal involving the group’s co-founder Armando Pereira, who was placed under house arrest in Portugal in July, further spooked debt investors.
The criminal investigation focuses on whether the 71-year-old executive collaborated with others to manipulate Altice’s procurement processes, with allegations that hundreds of millions of euros were illicitly diverted. Altice has suspended a number of other senior executives around the world following the corruption investigation. Pereira has already denied any wrongdoing.
On Wednesday, Altice International announced plans to borrow 500 million euros on the leveraged loan market, in order to repay bonds that mature in 2025. The company, which operates in Portugal, Israel and the Dominican Republic, is one of the Altice’s three main silos, together with Altice France and Altice USA.
Altice International is widely regarded as having the strongest credit profile of the three groups. It has a net debt-to-ebitda ratio of 4.8 times – albeit based on heavily adjusted earnings – compared to 5.2 times at Altice France and 6.7 times at Altice USA.
Altice offers an interest rate of 5 percentage points compared to the variable reference rate, while at the same time offering investors a discount on the nominal value of 96 euro cents on the four-year loan.
For Altice, this equates to a double-digit all-inclusive annual cost. Leveraged loans are largely purchased by institutional investors and special purpose vehicles known as collateralized loan obligations.
While Drahi said last month his main focus was addressing the group’s upcoming deadlines, he has also explored selling assets and shares to raise funds.
Drahi is looking to raise potentially 3 billion euros through the sale of a minority stake in Altice France, according to bankers, who added that financial investors rather than rival telecoms companies are the most likely buyers.
Investment banks including Lazard, Goldman Sachs and Morgan Stanley have also been tasked with probing sales of the group’s data centers in France, telecoms operations in Portugal and the Dominican Republic and video advertising firm Teads.
Following Pereira’s arrest, Altice management sought to allay debt investors’ concerns about the sustainability of its $60 billion and to distance itself from allegations against the group’s co-founder.
On a call with investors last monthDrahi described the alleged fraud as “a shock and a huge disappointment”.
“If the allegations are true, I feel betrayed and deceived by a small group of individuals, including one of our senior colleagues,” he added.
Pereira’s arrest was particularly sensitive for Drahi, not only because it had been clear for some time that he had his own trusted right arm, but also because the two men’s finances have long been intertwined. In the same investor call, Drahi confirmed that he had an agreement that gave the Portuguese executive “an interest of approximately 20% of my personal economic interest” in Altice.
Drahi, who usually leaves day-to-day investor relations to his lieutenants, has spent the last two months meeting with major lenders in an attempt to allay their concerns. Earlier this month, Goldman Sachs hosted a “fireside chat” in which Drahi outlined his road map for reducing Altice’s debt, arguing that the so-called “price war” in French telecoms is easing with further market consolidation is increasingly likely.
BNP Paribas and Goldman Sachs are leading the Altice International loan deal, with commitments from investors by October 2.
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