April 25, 2024 • 36 mins
Altice ‘Jenga Tower’ Menaces Global Credit Markets (Podcast)Altice distress is ripping through global credit markets and setting some ugly precedents for debt investors. Aidan Cheslin from Bloomberg Intelligence joins Irene Garcia Perez, Eleanor Duncan and James Crombie with Bloomberg News to discuss the ongoing drama. Billionaire owner Patrick Drahi has taken a combative approach to creditors, who are joining forces in an effort to avoid steep losses. Credit rating downgrades and asset price falls at Altice France — which has more than €24 billion ($25.6 billion) in debt — make lenders cautious and undermine the ability of other risky companies to refinance debt. The French telecom is “teetering like a Jenga tower with unsustainable leverage and negative free cash flow,” according to BI’s Cheslin.
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Episode Transcript
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Speaker 1 (00:17):
Hello, and welcome to the Credit Edge, a weekly markets podcast.
My name is James Crumby. I'm a senior editor at Bloomberg.
This week, we're very pleased to welcome Aidan Cheslin from
Bloomberg Intelligence. How are you Aidenkay?
Speaker 2 (00:28):
Thank you, James Hailing very.
Speaker 1 (00:30):
Good, Thanks so much for joining us today. We're excited
to get your thoughts on the telecom sector, especially Altis.
Also delighted to welcome back Irene Garthia Pees with Bloomberg News.
Great to see you again, Ay, Ronny.
Speaker 3 (00:40):
How are you glad to be here?
Speaker 1 (00:42):
And also from Bloomberg News. Brilliant to see Eleanor Duncan,
who covers leverage finance in London. How's it going?
Speaker 4 (00:48):
Thanks for having me. I'm good.
Speaker 1 (00:50):
So we're here to talk about Altis. It's a sprawling
Europe based telecoms company with a colorful billionaire at the helm,
now tipping into distress. They have about sixty billion dollars
in debt and there's a fairly high chance of them
not paying it all back, which will affect a lot
of different types of investor and will weigh on the
sector and more broadly on credit markets, particularly in Europe.
(01:11):
It's a vast debt complex and a frequent issuer. They're
also doing some fairly creative maneuvers to try and shift
assets around the balance sheet and shield them from claims
if things do go bad, so called unrestricted subsidiaries. I'm
hoping one of you can help explain that and what
kind of precedent is being set here. But the sheer
volume of debt in a variety of currencies makes it
(01:31):
a widely held name by credit investors, hard to avoid
in the bond and loan market, and there are implications
too for collateralized loan obligations. So let's start there. Can
you speak to that eleanor what's the mood in the
market when you ask about Altis?
Speaker 4 (01:45):
As you mentioned Artisse has, I mean especially Artist France.
So artist has an enormous debt pile of you know,
kind of around sixty billion dollars and Artist France has
about twenty four billion euros of that. So I think
some bank analysts are estimating that ninety percent of European
(02:06):
clos are exposed to Artis. So Artisa's troubles are impacting,
you know, the entire market. The issue is that when
you know now Moody's in S and P has downgraded
Artise France to triple C. The problem is that clos
are restricted in how much they can hold of, you know,
(02:27):
the kind of riskiest junk debt. I think it's something
like they're allowed to hold something like seven point five
percent in terms of their overall portfolios. So now there'll
be under pressure either you know, to sell Autie's debt
or maybe some of the higher priced triple C debt
that they have in their portfolios. The reason that that matters,
(02:49):
I guess in the broader leverage finance market is because
triples sorry, clos are a crucial cog of the market.
They're the biggest buyers of leverage loan and so this
might impact, you know, kind of how eager banks are
to underwrite new LBOs. It might also impact, you know,
how easy it is for some of the riskiest borrowers
(03:12):
to refinance their debt.
Speaker 1 (03:14):
Just to make it easy for some of our readers
who don't know, clos, they basically buy leverage loans, which
are risky company loans, and they repackaged them into securities
and sell them at some different levels of risk, right
right exactly, And so in terms of like the impact
just one single name, one company is having this kind
(03:35):
of massive effect on Europe and also other parts of
the world. I mean we be saying the same in
the US.
Speaker 4 (03:41):
Yeah. I think Bank of America analysts had that when
Artise France was downgraded to triple C, something like thirteen
percent of US clos have already breached that you know,
triple C requirement. So this is something that we're seeing
across the world. And again kind of goes to the
(04:03):
fact that this single credit has built up massive amounts
of debt mainly during the era of easy money and
thanks to kind of very aggressive acquisitions, and now you know,
creditors are paying the price of that.
Speaker 1 (04:18):
Is it a big enough event to shut down that market?
I mean, they're just so much cash chasing every deal
at the moment. I mean that the yields are so
high that investors just seem to love credit generally. But
is this name big enough to cause that kind of
you know, dislocation.
Speaker 4 (04:33):
I mean, Celos have had a very good start to
the year. I think you know, something like record issuance
at least for you know, a number of years, so
they've had as opposed to last year when issuance was
in the doldrums, they've had a very strong start now.
COLO managers and bankers tend to stress the point that
(04:54):
even if a credit is downgraded into this you know,
junkiest junk territory, they're not forced sellers. So they might
choose to you know, hold on to Altis debt and
maybe until the prices recover and as in, you know,
kind of stay in breach of that these kind of
triple C buckets. They might look to sell other CLO collateral.
(05:19):
But that means that we're seeing the impacts of Altis's
troubles on other leverage loan issuers in the market. So
I think when when you know, France was first downgraded
into triple C, we saw impacts for example on you know,
the five billion dollar loan from ZAO, would say a
(05:39):
US issuer, their prices were hit in the secondary loan market.
So people aren't saying that the CLO market is clogged
up yet, but it's for sure that a lot of
managers are going to be impacted by this. I mean
one CLO manager described alties Front's impact, you know, the
downgrade as a quote widow maker for some managers in
(06:02):
the market. We've yet to see that, but you know,
hold this, hold this.
Speaker 1 (06:06):
Page sounds grim widow maker, So there's definitely some contagion there.
Let's talk about the drama at the company level, and
it gave us a flavor of what's going on. There's
a very colorful billionaire there, and there's all sorts of
stories about artworks and you know, colorful phrases like Dayton switch,
bullyboy tactics. What's going on.
Speaker 3 (06:26):
There is a very colorful character controlling the company who's
built this empire basically with mergers and acquisitions funded with
debt at a time when dead was very cheap. And
it's been a while since this kind of structure has
been a concern. Already, back in two thousand and sixteen
(06:46):
or seventeen, we already had stories that pointed about Eltis
having sixty elties the whole empire. Now it's divided in
three seals after an inter all your organization, it's International,
it's Front, and it's alts US and overall, the sixty
(07:07):
billion has been a concern, in particular for the twenty
four billion that they have in Europe. It's the largest
junk kissure by far, and then he has been very
open about this. The fact that I'm so big in
the credit market is not my problem as much as
the bank's problem, or in this case, bondholders and other
(07:31):
investors problem. IF's what's the worst that can happen to me?
If I can't repay my mortgage? Well, okay, fine, the
bank will get back the keys of the house. But
I've enjoyed all these years and I've been happy in
that has He said that very very openly. So that's
(07:52):
that's the mood, and that's the playbook now. He what
was interesting, The timing is interesting and also the approach.
Let's go back to last year. August last year, there
were summer last year there were news that Portugal was
investigating Altis Portugal, which is part of Altis International, and
(08:17):
in particular they were investigating a few individuals, one of
them Aarano Pereda is the co founder of Altis, so
very very close person to Patrick Dry for corruption and
Patrick Dry whent he appeared on on the company's earnings
(08:41):
in August to kind of reensure reassured investors that Altis
was a victim of this corruption case and that well
he was not aware of this and that he was very,
very disappointed with the these individuals. Then he went on
(09:03):
a road show in September in London and New York
to tell investors that everything and anything in the Altist
universe globally US, Portugal, Israel, and France and American Republic
was up for sale at a price, and that he
would use that to repay that. So the asset sale
(09:26):
process started and he for for the French silo. They
agreed on the on the disposals of two assets. So
the assumption in the market was that they were going
to use the proceeds to repay that. But then the
company had a surprise for creditors, which is that right
before agreeing on the sale, they removed those assets from
(09:48):
the restricted group and moved it to unrestricted entities, which
essentially means that it's out of reach of creditors. If
it ended up in a bankruptcy case, then yes, as
in an an insolvency procedure, yes, creditors would have records
against those assets. But what the company can do in
(10:11):
the meantime if before it ended in that scenario is
it can raise debt from third party, for instance, against
those assets, and that collateral would be for the new
money provider. And so what the company did was in
the last earnings call in March, they told investors about
(10:36):
this move and also that they would only consider using
the proceeds to repay that if creditors participated in discounted transactions.
Now that of course shifted the mood because everyone was
expecting a repayment and all of a sudden taking they
were told like, actually, you know what, you need to
(10:56):
take a haircut. We don't know how big the haircut,
we don't know. That's what's the plan. But there he's
he's created some bad blood, let's put it that way
with creditors.
Speaker 1 (11:07):
So these the bully boy tactics you've been writing about.
Speaker 3 (11:10):
That's yeah, that's exactly why it does. For a lot
of people, it does feel like a ransom.
Speaker 1 (11:16):
Why is he doing this? And I mean, obviously you
say that it's a situation where you know, he owes
a lot of money, so it's more that the lenders
problem at this point because there's so much outstanding. But
doesn't you know, isn't his company one that has to
come back to the market. Aren't they one that you know,
they require a lot of capital to run their business.
So he's kind of burning his bridges with creditors. Isn't
there a long term negative impact for him?
Speaker 3 (11:37):
Yes, although there are different theories about why he is
doing it now, and I probably it's not down to
a single one, but the most likely one is that
because everyone was expecting to for the company to starty
peeing dead, the price of the bonds and the loans
had had increased, so the window for the comp need
(12:00):
to take advantage of the discounts to do buybacks, for instance,
was closing. So it did feel like they wanted to
send the message that no, no, no, Actually, like the
only way to solve our leverage problem is if we
do this haircut thing, and they want to cut ten billion,
(12:22):
which means that they will still have about fourteen billion
outstanding in the French silo. So yes, they will need
to come back to the market. But I guess to
an extent they're betting that creditors will forget in a
couple of years.
Speaker 1 (12:38):
It's tony possible. So I do want to bring in aiden,
but before we do that, I'll know what's the kind
of emotional impact on the market of people furious at
this billionaire.
Speaker 4 (12:50):
Yeah, I mean people are upset, I guess speaking to
high bond investors, and that's you know, I'll tease makes
up a huge amount of the high old bond market too.
You know, everyone is suffering pain, everyone has exposure. They
haven't been able to avoid it. You know, they've built
(13:10):
up exposure to the company over this you know kind
of era of easy money, when getting a return was
the priority. I guess they kind of saw what telecoms
for a long time was like the darling of the
high old market, and so now they I guess they
see themselves as having you know, helped Drahi to where
(13:33):
he's got. He's a he's a billionaire, he lives this,
you know, kind of fairly, you know, lavish lifestyle, and
now he's turning to the secured and they see him
as you know, having turned to the secured creditors who
have got him there saying actually, you guys are going
to have to take the pain. So there's there's a
lot of there's a lot of bad feeling in the market,
(13:55):
and they say, you know, there's a number of these
companies are headed up by I guess similar figures to Drahi,
maybe like the call sens of this world in the
case of you know, the ardor chairman that are pulling
similar tricks, and they're saying, you know, Altisse France was
the last straw. We're not going to support these kind
(14:16):
of companies anymore. And you know, as Ernie says, maybe
in a couple of years time, they'll eat their words
or you know, kind of least. Memories are sometimes short
in this market. But for now that they're upset.
Speaker 1 (14:31):
Let's talk to Aidan Cheslin at Bloomberg Intelligence. You look
at this stuff in great detail. You have described Alts
as teetering like a Jenga tower. So what's the situation
and aiden how do you view things?
Speaker 2 (14:44):
Yeah, I I think you know, clearly the company themselves
have said that the current debt structure is not sustainable
going forward. You could certainly argue they've made that worse
by taking assets out of structure. Not just now, by
the way, but that behavior dates back to twenty twenty
(15:05):
one when they sold their tower business. Hevery and yank
those proceeds out of the company rather than reducing debt.
You know, you have leverage of six point four times
at the end of last year. The company is guiding
that ebit DA will be down mid to high single
digits this year. They're also interest costs because of where
(15:28):
we are in the credit cycle, interest costs are going
up fast than they're able to cut the capex, which
means they'll be free cashtro negative this year. So you know,
we have on our numbers leverage going from six point
four to seven times this year and seven point seven
the next year. Recent transactions where we've seen European telecoms
(15:48):
companies being traded or bought and sold, they've been going
for EVY to ebit DAR multiples of close to five
five and a quarter times. So clearly, this kind of
level of debt we have now there's no equity value
in the business is probably you know, if it was
to go into into a hard restructuring, you'd probably wipe
out the subordinated debt as well, and the and the
(16:11):
leverage is spiraling. So please, something needs to be done.
And I think that's that's the crux of what the
company was trying to get at on the call. It's
just a question of how much gets done and who
takes the pain.
Speaker 1 (16:25):
And selling the assets. We've talked about that on this show.
Are they kind of getting rid of the crown duels.
Are they undermining the value by by selling the assets the.
Speaker 2 (16:33):
Businesses that have been stripped from the group so far
a kind of non core. I think the problem is
fundamentally that the leverage of the core s FR business
is just way too high relative to to the value
of the company. And that's that's what's kind of hurting them,
(16:54):
and it's part of what will form the negotiations between
the creditors and the the shareholder, because obviously, if the
company is worth around five to five and a quarter
times ebit DAR, if you can cut the leverage down
to four times or below, which is where Artista saying
they'd like it cut down to through debt haircuts, you
(17:16):
are recreating equity value to the shareholder when none exists
today as well. So that's that's one part of the discussions.
How much will creditors want to give into the to
the shareholder and create value there versus preserving value for themselves.
Speaker 1 (17:34):
And what about all the shenanigans with moving the debt around?
I mean, is this something that investors should have known
about because it was in the bond docks or the
covenants and they you know, they were warned, but they
just didn't take any notice, and now it's coming home
to roost.
Speaker 2 (17:46):
Yeah, I think it's a symptom of weakening and documentation
that we've seen as a process over the last decade
or more. Companies as clearly entitled to do this. It
is clearly aggressive, but you know, the limitations were there
in the documentation. And we're seeing a deal this week
(18:08):
with Telecommentalia where they're offering their bondholders the chance to
move into the network business, which is essentially being bought
out and lbo' by KKR at the starting leverage of
four point three times, but we think going up to
over five times, and they're being offered a security package
but otherwise basically the same terms of the largely investment
(18:29):
grade style documents they had before. And many investors probably
will do that switch into the tower company because in
the long term it's probably a more stable asset, But
they're going to be sitting in a company over five
times levered, run by KKR with investment grade style documents,
and that's been the way of the market for quite
(18:50):
some time now.
Speaker 1 (18:51):
And let's say they do come out at the other
side of this, you know, they do put some losses
on creditors, but they they come out at the other
end and then they have to come back to the market.
Do you expect there to be any premium on, you know,
or any you know, having to pay a bit more
to access the market after that, or is it just
such such a big name that investors will forget.
Speaker 2 (19:12):
I think investors will remember this one in particular for
some time. Don't forget through the other silos, whether it's
Alti's international for example, They basically put, with a very
few exceptions, the entire company up for sale. So I
think the plan is to try and extract as much
value as they can and kind of carry on selling
(19:35):
assets and taking the value that they can out and
repaying debt elsewhere. So probably if you if you, you know,
take a straight line extrapolation of that, and they're probably
hoping that once this debt haircut is done, they wouldn't
necessarily need to issue a substantial amount in the next
two to three years.
Speaker 1 (19:56):
So these aggressive debt management move they've been seen before
in the US, for sample J Crew, but fairly new
in Europe at this point. Creditors are organizing, right it
only just like they do in the US. How does
that work? What's the next stage? What are we looking for?
Speaker 3 (20:11):
So what they've done so far? There are two in
the case of all these trands that are too credator groups.
One is a group of crosshold of investors that have
crossholdings in the unsecured bonds and the secure bonds that
that one has about four billion of alt is dead.
(20:33):
And then there's a bigger group of secured lenders and
bond holders that these ones have signed a cooperation agreement
so called that basically what is we're going to stick
together so that the company can't play tricks and can't
(20:54):
try to to split us and play us against each other.
What is interesting, which is again for Europe, is very
unusual because it's often seen as uncompetitive, so it's a
bit of a gray area depending on what they're used for.
The thing here is that we have no idea what
the company wants to do. We don't know what they
(21:16):
will come up with. So they know that they want
to band together and push against any potential abuse, which
is don't know what the abuse is going to look like.
And then the interesting thing about this one is that
it's six months, which is way longer than they usually
are because typically it's like ninety day agreement and then
(21:39):
they get renewed. This one is for six months, which
you can extend twice for sixty days.
Speaker 1 (21:46):
So do you expect them to be successful in any way?
I mean, is there any sign that this might work?
You know, the credits can band together and they can
defend themselves.
Speaker 3 (21:54):
There have been instances before, like Dish in the US,
where creditors pushing bag was a successful move. The thing
is that this one is also a very very big group,
so it's also TVD if they will manage to stick
together given the size of the group.
Speaker 1 (22:15):
So just going back to the impact more broadly, I mean,
elen'tor mentioned it and aid and I just wanted to
get your take on the kind of ripple effect through telecoms,
you know, through other sectors or is it really just
a standalone Altias story that people just putting this in
an Oltis box.
Speaker 2 (22:34):
Now we've seen obviously things like the situation with Arda
at the moment as well. There's a few of these
kind of restructurings going on at the moment, and I
think there's been I think you mentioned it earlier. Ins
of the weakness of the documentation and the availability to
move assets around has been part of the problem for creditors.
(22:57):
You also have in several of these situationstions in Outis
France is one of them, even have competing interests between
different creditor groups. So within out Ease France, there's obviously
some creditors that are solely in the senior secure debt
and there are some that are in the subordinated debt
as well. And if you're trying to preserve value in
(23:19):
one area, it means you have to give up more
value in another area, and you end up having some
creditor on creditor violence as well, and certainly see you
there's instances where that can happen. You know, every each
of these restructurings have their own unique circumstances at the
(23:40):
root cause of it, although, has been a combination of
higher interest rates, weak financial performance, poor documentation.
Speaker 1 (23:51):
We talked to a big investor in Europe not that
long ago, a couple of episodes ago about you know,
the risks to credit markets. We always bring those up,
and it's she said her biggest concern she's based in
Europe was the spread of credits or on credit of
violence from the US to Europe. As you just mentioned,
aiden this is kind of like, you know, the beginning
(24:13):
of it potentially. I don't know. Do you think this
marks the beginning of the spread of this to Europe.
Speaker 3 (24:20):
Well, we certainly are seeing it in capital structures where
there is a big US component, as in there are
a lot of US investors and advisors that are used
to do these tactics. I don't know if when we
It's true that one of the issues about doing it
in Europe is that you never wanted to be the
(24:42):
first one to try. You wanted someone to try and
fail first, and then if it didn't fail, then you
would think about it. We'll see. Another reason why in
Europe it doesn't tend to work is because the market
is smaller. That's if that's that's a theory. The market
(25:02):
is smaller and people tend to be where investors tend
to be nicer to each other because they see each
other more often, perhaps than in the US. I don't
know if that's that true, but we'll we'll see if
that's really the beginning of a more aggressive trend in
Europe or if it's used an exception for like huge
(25:23):
capital structures where this is just like more more prone
to happen.
Speaker 1 (25:29):
You'll probably find out, Irony, you're you're here in New
York for three months, usually based on your you'll find
out whether people here are more aggressive than they are
in Europe. What do you think? Do you think that's
reasonable sumption that the market there is a is a
is a kind of one.
Speaker 4 (25:44):
Yeah. I would just echo what Ironie said, which is
that I mean there's some fear among investors that you know,
some of these kind of more aggressive US style tactics
are coming over here. But you know, the CLO market
in particular is very small. Everyone knows each other. I mean,
(26:04):
we'll see, right, And.
Speaker 1 (26:06):
So as as Aiden said that there may be others
in the same boat, are there any other situations out
there that we think are going to go the same way?
Speaker 3 (26:15):
In Europe there's introm that could potentially clay or try
to play creators against each other. It's still early days
and there's no plan on the table yet, but in
that case there is. There are two groups as well,
and they have different interests depending on the maturities of
(26:37):
the dead that they hold. If the company will use
it to try to extract as much value as possible.
Speaker 1 (26:45):
Will we'll see longer term. Does this kind of put
pressure on covenants or on documentation or do you think
people just kind of will will move on.
Speaker 4 (26:57):
I mean, something that I heard yesterday from some of
the banks was that at least a few banks are
being a bit more cautious around underwriting new LBOs after
you know, kind of what they're seeing in terms of
what's going on with alties fronts, so not necessarily on leverage,
(27:18):
but they're being kind of much more cognizant about keeping
investor protections intact, so you know, maybe in some cases
stepping back from deals where sponsors are being too aggressive
on some of the baskets, so especially around dividend distribution
baskets and you know, company's ability to sell assets without
(27:41):
paying down debt. So I thought that was kind of
interesting that this is, you know, spiraling out in some
senses to the way people are looking at new leverage buyouts.
Speaker 3 (27:54):
I think at the end of the day, it will
depend on offer and demand, because this could be an issue.
It was something known and investors bought it anyways because
the demand was so strong, they didn't really have the
negotiating power to push back when they do, like we
do see it in the market that when they do,
(28:15):
they do push back and they get better terms. But
in general, I wouldn't be surprised if in the next
months or next year we start seeing loose documentation again
just because of a matter of for and demand.
Speaker 1 (28:33):
It sounds to me, based on what you're all saying,
is Altias kind of has the upper hand here. Is
that fair to an.
Speaker 3 (28:40):
Extent, yes, although I was having this discussion with some
investors and the idea seems to be also that he
kind of needs to be not too bad with at
least part of his investor is because they're also involved
in alts Us, so he kind of he can be mean,
(29:02):
but just to an extent, I guess.
Speaker 2 (29:06):
I think this series that he has the upper hand
comes to the point that he's holding the media and
then Data Center proceeds as a sort of a carrot
for investors to agree to this haircut, and it makes
a big difference to the size of the haircut that
(29:26):
you need to take. You know, we ran some scenarios
in our research. We looked at, well, what's the worst
case scenario if they want to get leverage below four times,
and those proceeds from those disposals are not recontributed, then
you'd be looking at a subordinated debt haircut of around
seventy percent and a senior debt haircut of around forty.
(29:48):
Now bear in mind, if you're a senior debt holder,
recovery values probably around eighty percent at the moment if
you wiped out the equity and subs, so that would
be a bitter pill for probably too bitter a pill
maybe the senior debt holders to swallow. If you put
those disposal proceeds back into the group, then the senior
debt haircut is nearer to twenty five percent. And if
(30:12):
you said, actually four and a half times leverage is
okay instead of four times as well, you're getting down
to fifteen to twenty percent, which is, you know, where
the bonds are kind of already pricing in, so that
might not be seen as quite such a bit of
pill by the senior debt holders. So I think that's
why people are saying that you know, he's holding a
(30:33):
lot of the cards because he can decide what to
do with those those proceeds, and that will have a
big influence on the negotiation. Bondholders do have some cards
of their own to play, particularly the senior holders. I
don't think the subordinated debt holders have a huge amount
(30:53):
of leverage, but the senior debt holders have maybe two
things in their favor. One is the fact that if
this went into a full restructuring, their recovery value is
probably eighty percent or better. And the second one is
that there is a maturity clock that's ticking that could
potentially get you there in twenty twenty five if there
was no agreement.
Speaker 1 (31:15):
And really, why does the US side of the matter.
Speaker 3 (31:18):
They will have to negotiate refinancing there as well at
some point, not that it's urgent in any case, but
there is part of the investor who is that it's
involved in Artist France is involved in Altis US as well.
Speaker 1 (31:30):
Okay, And when you talk to the company, what do
they say, How do they defend themselves?
Speaker 3 (31:35):
I don't think they feel like they need to defend themselves.
And what was interesting was what I was mentioning earlier
about Drying the calls is that he was in the
calls last year to explain that Altis was a victim
of the fraud, but he didn't show up in the
calls where investors were at all about the haircut, so
that I found was an interesting move from him. But
(31:59):
now the company is like, we we need to cut
leverage and this is how we plan to do it.
Speaker 1 (32:05):
But when you talk about bait and switch, bully boy tactics,
Genger towers, I mean, what do they say.
Speaker 3 (32:11):
They don't seem to disagree. They don't push back at
the very least.
Speaker 1 (32:17):
Okay, So I'll ask all of you just to wrap
things like what's the next thing to watch for here
and why? Probably starting with aiden, you know, final thoughts.
Speaker 2 (32:26):
Yeah, I think it's the negotiations between the company and
the various creditor groups. You know, I ran through the
debt haircut scenarios already. We said in our note that
it feels like that there is, you know, some room
for compromise, given that that you have those proceeds out there,
(32:50):
given that recovery values in the senior dad are probably
that better than those implied by what would happen if
if you were to try and force leverage all the
way down to where the company wants it. So I
think you need to let those those investor groups forms
and those negotiations to start between the company to see
if they can reach a compromise somewhere in the middle.
Speaker 1 (33:12):
Is there a calendar for that or a trigger or
some kind of date that we're looking for particularly or
is it fluid?
Speaker 2 (33:18):
I think that's still relatively fluid. Obviously, you have the
deadlines on that were mentioned before and some of the
creditor agreements. But I think it will take some time.
You know, the maturity cliff is more in twenty twenty
five rather than this year, so there's time for those
negotiations to happen.
Speaker 3 (33:35):
Yeah, they have two once maturing January in February. I
think it is next year. But the interesting thing is
that everyone is expecting this to take some time.
Speaker 1 (33:48):
Okay, so get some popcorns, settle back. But is there
anything on your short term radar at any that you're
looking at.
Speaker 3 (33:56):
Well as at sales, what's happening with the sfar in particular,
or It's interesting because in that one they were looking
more into a minority stake sale. You don't really find
easily someone that is willing to have a minority stake
in a company where a Dragi has the driving seat.
(34:16):
That's put it that way.
Speaker 1 (34:18):
I don't know final thoughts.
Speaker 4 (34:21):
I mean, I guess I'm interested in how this is
going to play out on a broader scale. You know,
there are a lot of these bloated cap structures out
in the market, which is having you know, kind of
an outsized impact on investors. You know, the high yield
market has shrunk while these capital structures have grown. So
it would be interesting to see whether this is going
(34:41):
to hit you know, like I said before, the real
economy where it's you know, riskier businesses are finding it
more difficult to refinance, especially at a time when interest
rates have surged, and if we're going to see a
lot more investor caution around say other of these kind
of large say maybe like be three rated structures and
(35:02):
potential downgrades.
Speaker 1 (35:04):
Great stuff. Ellen Duncan with Bloomberg News, Ierni Garthia Pees
also the Bloomberg News, and Aidan Cheslin from Bloomberg Intelligence,
thank you so much for joining.
Speaker 3 (35:13):
Us, Thank you for having us, Thank you, thank you.
Speaker 1 (35:17):
Check out all of Aidan Cheslin's excellent analysis on the
Bloomberg terminal, and you really do need to be following
the great work by Ireni Garthia Pees and Elenor Duncan
at Bloomberg News, Market Moving Scoops on the Terminal and
at Bloomberg dot com. And please do subscribe wherever you
get your podcasts. We're on Apple, Spotify and all other
(35:37):
good podcast providers, including the Bloomberg Terminal. Give us a review,
tell your friends, or email me directly at Jcrombie eight
at Bloomberg dot net. I'm James Crombie. It's been a
pleasure having you join us again next week on the
Credit Edge
Hello, and welcome to the Credit Edge, a weekly markets podcast.
My name is James Crumby. I'm a senior editor at Bloomberg.
This week, we're very pleased to welcome Aidan Cheslin from
Bloomberg Intelligence. How are you Aidenkay?
Speaker 2 (00:28):
Thank you, James Hailing very.
Speaker 1 (00:30):
Good, Thanks so much for joining us today. We're excited
to get your thoughts on the telecom sector, especially Altis.
Also delighted to welcome back Irene Garthia Pees with Bloomberg News.
Great to see you again, Ay, Ronny.
Speaker 3 (00:40):
How are you glad to be here?
Speaker 1 (00:42):
And also from Bloomberg News. Brilliant to see Eleanor Duncan,
who covers leverage finance in London. How's it going?
Speaker 4 (00:48):
Thanks for having me. I'm good.
Speaker 1 (00:50):
So we're here to talk about Altis. It's a sprawling
Europe based telecoms company with a colorful billionaire at the helm,
now tipping into distress. They have about sixty billion dollars
in debt and there's a fairly high chance of them
not paying it all back, which will affect a lot
of different types of investor and will weigh on the
sector and more broadly on credit markets, particularly in Europe.
(01:11):
It's a vast debt complex and a frequent issuer. They're
also doing some fairly creative maneuvers to try and shift
assets around the balance sheet and shield them from claims
if things do go bad, so called unrestricted subsidiaries. I'm
hoping one of you can help explain that and what
kind of precedent is being set here. But the sheer
volume of debt in a variety of currencies makes it
(01:31):
a widely held name by credit investors, hard to avoid
in the bond and loan market, and there are implications
too for collateralized loan obligations. So let's start there. Can
you speak to that eleanor what's the mood in the
market when you ask about Altis?
Speaker 4 (01:45):
As you mentioned Artisse has, I mean especially Artist France.
So artist has an enormous debt pile of you know,
kind of around sixty billion dollars and Artist France has
about twenty four billion euros of that. So I think
some bank analysts are estimating that ninety percent of European
(02:06):
clos are exposed to Artis. So Artisa's troubles are impacting,
you know, the entire market. The issue is that when
you know now Moody's in S and P has downgraded
Artise France to triple C. The problem is that clos
are restricted in how much they can hold of, you know,
(02:27):
the kind of riskiest junk debt. I think it's something
like they're allowed to hold something like seven point five
percent in terms of their overall portfolios. So now there'll
be under pressure either you know, to sell Autie's debt
or maybe some of the higher priced triple C debt
that they have in their portfolios. The reason that that matters,
(02:49):
I guess in the broader leverage finance market is because
triples sorry, clos are a crucial cog of the market.
They're the biggest buyers of leverage loan and so this
might impact, you know, kind of how eager banks are
to underwrite new LBOs. It might also impact, you know,
how easy it is for some of the riskiest borrowers
(03:12):
to refinance their debt.
Speaker 1 (03:14):
Just to make it easy for some of our readers
who don't know, clos, they basically buy leverage loans, which
are risky company loans, and they repackaged them into securities
and sell them at some different levels of risk, right
right exactly, And so in terms of like the impact
just one single name, one company is having this kind
(03:35):
of massive effect on Europe and also other parts of
the world. I mean we be saying the same in
the US.
Speaker 4 (03:41):
Yeah. I think Bank of America analysts had that when
Artise France was downgraded to triple C, something like thirteen
percent of US clos have already breached that you know,
triple C requirement. So this is something that we're seeing
across the world. And again kind of goes to the
(04:03):
fact that this single credit has built up massive amounts
of debt mainly during the era of easy money and
thanks to kind of very aggressive acquisitions, and now you know,
creditors are paying the price of that.
Speaker 1 (04:18):
Is it a big enough event to shut down that market?
I mean, they're just so much cash chasing every deal
at the moment. I mean that the yields are so
high that investors just seem to love credit generally. But
is this name big enough to cause that kind of
you know, dislocation.
Speaker 4 (04:33):
I mean, Celos have had a very good start to
the year. I think you know, something like record issuance
at least for you know, a number of years, so
they've had as opposed to last year when issuance was
in the doldrums, they've had a very strong start now.
COLO managers and bankers tend to stress the point that
(04:54):
even if a credit is downgraded into this you know,
junkiest junk territory, they're not forced sellers. So they might
choose to you know, hold on to Altis debt and
maybe until the prices recover and as in, you know,
kind of stay in breach of that these kind of
triple C buckets. They might look to sell other CLO collateral.
(05:19):
But that means that we're seeing the impacts of Altis's
troubles on other leverage loan issuers in the market. So
I think when when you know, France was first downgraded
into triple C, we saw impacts for example on you know,
the five billion dollar loan from ZAO, would say a
(05:39):
US issuer, their prices were hit in the secondary loan market.
So people aren't saying that the CLO market is clogged
up yet, but it's for sure that a lot of
managers are going to be impacted by this. I mean
one CLO manager described alties Front's impact, you know, the
downgrade as a quote widow maker for some managers in
(06:02):
the market. We've yet to see that, but you know,
hold this, hold this.
Speaker 1 (06:06):
Page sounds grim widow maker, So there's definitely some contagion there.
Let's talk about the drama at the company level, and
it gave us a flavor of what's going on. There's
a very colorful billionaire there, and there's all sorts of
stories about artworks and you know, colorful phrases like Dayton switch,
bullyboy tactics. What's going on.
Speaker 3 (06:26):
There is a very colorful character controlling the company who's
built this empire basically with mergers and acquisitions funded with
debt at a time when dead was very cheap. And
it's been a while since this kind of structure has
been a concern. Already, back in two thousand and sixteen
(06:46):
or seventeen, we already had stories that pointed about Eltis
having sixty elties the whole empire. Now it's divided in
three seals after an inter all your organization, it's International,
it's Front, and it's alts US and overall, the sixty
(07:07):
billion has been a concern, in particular for the twenty
four billion that they have in Europe. It's the largest
junk kissure by far, and then he has been very
open about this. The fact that I'm so big in
the credit market is not my problem as much as
the bank's problem, or in this case, bondholders and other
(07:31):
investors problem. IF's what's the worst that can happen to me?
If I can't repay my mortgage? Well, okay, fine, the
bank will get back the keys of the house. But
I've enjoyed all these years and I've been happy in
that has He said that very very openly. So that's
(07:52):
that's the mood, and that's the playbook now. He what
was interesting, The timing is interesting and also the approach.
Let's go back to last year. August last year, there
were summer last year there were news that Portugal was
investigating Altis Portugal, which is part of Altis International, and
(08:17):
in particular they were investigating a few individuals, one of
them Aarano Pereda is the co founder of Altis, so
very very close person to Patrick Dry for corruption and
Patrick Dry whent he appeared on on the company's earnings
(08:41):
in August to kind of reensure reassured investors that Altis
was a victim of this corruption case and that well
he was not aware of this and that he was very,
very disappointed with the these individuals. Then he went on
(09:03):
a road show in September in London and New York
to tell investors that everything and anything in the Altist
universe globally US, Portugal, Israel, and France and American Republic
was up for sale at a price, and that he
would use that to repay that. So the asset sale
(09:26):
process started and he for for the French silo. They
agreed on the on the disposals of two assets. So
the assumption in the market was that they were going
to use the proceeds to repay that. But then the
company had a surprise for creditors, which is that right
before agreeing on the sale, they removed those assets from
(09:48):
the restricted group and moved it to unrestricted entities, which
essentially means that it's out of reach of creditors. If
it ended up in a bankruptcy case, then yes, as
in an an insolvency procedure, yes, creditors would have records
against those assets. But what the company can do in
(10:11):
the meantime if before it ended in that scenario is
it can raise debt from third party, for instance, against
those assets, and that collateral would be for the new
money provider. And so what the company did was in
the last earnings call in March, they told investors about
(10:36):
this move and also that they would only consider using
the proceeds to repay that if creditors participated in discounted transactions.
Now that of course shifted the mood because everyone was
expecting a repayment and all of a sudden taking they
were told like, actually, you know what, you need to
(10:56):
take a haircut. We don't know how big the haircut,
we don't know. That's what's the plan. But there he's
he's created some bad blood, let's put it that way
with creditors.
Speaker 1 (11:07):
So these the bully boy tactics you've been writing about.
Speaker 3 (11:10):
That's yeah, that's exactly why it does. For a lot
of people, it does feel like a ransom.
Speaker 1 (11:16):
Why is he doing this? And I mean, obviously you
say that it's a situation where you know, he owes
a lot of money, so it's more that the lenders
problem at this point because there's so much outstanding. But
doesn't you know, isn't his company one that has to
come back to the market. Aren't they one that you know,
they require a lot of capital to run their business.
So he's kind of burning his bridges with creditors. Isn't
there a long term negative impact for him?
Speaker 3 (11:37):
Yes, although there are different theories about why he is
doing it now, and I probably it's not down to
a single one, but the most likely one is that
because everyone was expecting to for the company to starty
peeing dead, the price of the bonds and the loans
had had increased, so the window for the comp need
(12:00):
to take advantage of the discounts to do buybacks, for instance,
was closing. So it did feel like they wanted to
send the message that no, no, no, Actually, like the
only way to solve our leverage problem is if we
do this haircut thing, and they want to cut ten billion,
(12:22):
which means that they will still have about fourteen billion
outstanding in the French silo. So yes, they will need
to come back to the market. But I guess to
an extent they're betting that creditors will forget in a
couple of years.
Speaker 1 (12:38):
It's tony possible. So I do want to bring in aiden,
but before we do that, I'll know what's the kind
of emotional impact on the market of people furious at
this billionaire.
Speaker 4 (12:50):
Yeah, I mean people are upset, I guess speaking to
high bond investors, and that's you know, I'll tease makes
up a huge amount of the high old bond market too.
You know, everyone is suffering pain, everyone has exposure. They
haven't been able to avoid it. You know, they've built
(13:10):
up exposure to the company over this you know kind
of era of easy money, when getting a return was
the priority. I guess they kind of saw what telecoms
for a long time was like the darling of the
high old market, and so now they I guess they
see themselves as having you know, helped Drahi to where
(13:33):
he's got. He's a he's a billionaire, he lives this,
you know, kind of fairly, you know, lavish lifestyle, and
now he's turning to the secured and they see him
as you know, having turned to the secured creditors who
have got him there saying actually, you guys are going
to have to take the pain. So there's there's a
lot of there's a lot of bad feeling in the market,
(13:55):
and they say, you know, there's a number of these
companies are headed up by I guess similar figures to Drahi,
maybe like the call sens of this world in the
case of you know, the ardor chairman that are pulling
similar tricks, and they're saying, you know, Altisse France was
the last straw. We're not going to support these kind
(14:16):
of companies anymore. And you know, as Ernie says, maybe
in a couple of years time, they'll eat their words
or you know, kind of least. Memories are sometimes short
in this market. But for now that they're upset.
Speaker 1 (14:31):
Let's talk to Aidan Cheslin at Bloomberg Intelligence. You look
at this stuff in great detail. You have described Alts
as teetering like a Jenga tower. So what's the situation
and aiden how do you view things?
Speaker 2 (14:44):
Yeah, I I think you know, clearly the company themselves
have said that the current debt structure is not sustainable
going forward. You could certainly argue they've made that worse
by taking assets out of structure. Not just now, by
the way, but that behavior dates back to twenty twenty
(15:05):
one when they sold their tower business. Hevery and yank
those proceeds out of the company rather than reducing debt.
You know, you have leverage of six point four times
at the end of last year. The company is guiding
that ebit DA will be down mid to high single
digits this year. They're also interest costs because of where
(15:28):
we are in the credit cycle, interest costs are going
up fast than they're able to cut the capex, which
means they'll be free cashtro negative this year. So you know,
we have on our numbers leverage going from six point
four to seven times this year and seven point seven
the next year. Recent transactions where we've seen European telecoms
(15:48):
companies being traded or bought and sold, they've been going
for EVY to ebit DAR multiples of close to five
five and a quarter times. So clearly, this kind of
level of debt we have now there's no equity value
in the business is probably you know, if it was
to go into into a hard restructuring, you'd probably wipe
out the subordinated debt as well, and the and the
(16:11):
leverage is spiraling. So please, something needs to be done.
And I think that's that's the crux of what the
company was trying to get at on the call. It's
just a question of how much gets done and who
takes the pain.
Speaker 1 (16:25):
And selling the assets. We've talked about that on this show.
Are they kind of getting rid of the crown duels.
Are they undermining the value by by selling the assets the.
Speaker 2 (16:33):
Businesses that have been stripped from the group so far
a kind of non core. I think the problem is
fundamentally that the leverage of the core s FR business
is just way too high relative to to the value
of the company. And that's that's what's kind of hurting them,
(16:54):
and it's part of what will form the negotiations between
the creditors and the the shareholder, because obviously, if the
company is worth around five to five and a quarter
times ebit DAR, if you can cut the leverage down
to four times or below, which is where Artista saying
they'd like it cut down to through debt haircuts, you
(17:16):
are recreating equity value to the shareholder when none exists
today as well. So that's that's one part of the discussions.
How much will creditors want to give into the to
the shareholder and create value there versus preserving value for themselves.
Speaker 1 (17:34):
And what about all the shenanigans with moving the debt around?
I mean, is this something that investors should have known
about because it was in the bond docks or the
covenants and they you know, they were warned, but they
just didn't take any notice, and now it's coming home
to roost.
Speaker 2 (17:46):
Yeah, I think it's a symptom of weakening and documentation
that we've seen as a process over the last decade
or more. Companies as clearly entitled to do this. It
is clearly aggressive, but you know, the limitations were there
in the documentation. And we're seeing a deal this week
(18:08):
with Telecommentalia where they're offering their bondholders the chance to
move into the network business, which is essentially being bought
out and lbo' by KKR at the starting leverage of
four point three times, but we think going up to
over five times, and they're being offered a security package
but otherwise basically the same terms of the largely investment
(18:29):
grade style documents they had before. And many investors probably
will do that switch into the tower company because in
the long term it's probably a more stable asset, But
they're going to be sitting in a company over five
times levered, run by KKR with investment grade style documents,
and that's been the way of the market for quite
(18:50):
some time now.
Speaker 1 (18:51):
And let's say they do come out at the other
side of this, you know, they do put some losses
on creditors, but they they come out at the other
end and then they have to come back to the market.
Do you expect there to be any premium on, you know,
or any you know, having to pay a bit more
to access the market after that, or is it just
such such a big name that investors will forget.
Speaker 2 (19:12):
I think investors will remember this one in particular for
some time. Don't forget through the other silos, whether it's
Alti's international for example, They basically put, with a very
few exceptions, the entire company up for sale. So I
think the plan is to try and extract as much
value as they can and kind of carry on selling
(19:35):
assets and taking the value that they can out and
repaying debt elsewhere. So probably if you if you, you know,
take a straight line extrapolation of that, and they're probably
hoping that once this debt haircut is done, they wouldn't
necessarily need to issue a substantial amount in the next
two to three years.
Speaker 1 (19:56):
So these aggressive debt management move they've been seen before
in the US, for sample J Crew, but fairly new
in Europe at this point. Creditors are organizing, right it
only just like they do in the US. How does
that work? What's the next stage? What are we looking for?
Speaker 3 (20:11):
So what they've done so far? There are two in
the case of all these trands that are too credator groups.
One is a group of crosshold of investors that have
crossholdings in the unsecured bonds and the secure bonds that
that one has about four billion of alt is dead.
(20:33):
And then there's a bigger group of secured lenders and
bond holders that these ones have signed a cooperation agreement
so called that basically what is we're going to stick
together so that the company can't play tricks and can't
(20:54):
try to to split us and play us against each other.
What is interesting, which is again for Europe, is very
unusual because it's often seen as uncompetitive, so it's a
bit of a gray area depending on what they're used for.
The thing here is that we have no idea what
the company wants to do. We don't know what they
(21:16):
will come up with. So they know that they want
to band together and push against any potential abuse, which
is don't know what the abuse is going to look like.
And then the interesting thing about this one is that
it's six months, which is way longer than they usually
are because typically it's like ninety day agreement and then
(21:39):
they get renewed. This one is for six months, which
you can extend twice for sixty days.
Speaker 1 (21:46):
So do you expect them to be successful in any way?
I mean, is there any sign that this might work?
You know, the credits can band together and they can
defend themselves.
Speaker 3 (21:54):
There have been instances before, like Dish in the US,
where creditors pushing bag was a successful move. The thing
is that this one is also a very very big group,
so it's also TVD if they will manage to stick
together given the size of the group.
Speaker 1 (22:15):
So just going back to the impact more broadly, I mean,
elen'tor mentioned it and aid and I just wanted to
get your take on the kind of ripple effect through telecoms,
you know, through other sectors or is it really just
a standalone Altias story that people just putting this in
an Oltis box.
Speaker 2 (22:34):
Now we've seen obviously things like the situation with Arda
at the moment as well. There's a few of these
kind of restructurings going on at the moment, and I
think there's been I think you mentioned it earlier. Ins
of the weakness of the documentation and the availability to
move assets around has been part of the problem for creditors.
(22:57):
You also have in several of these situationstions in Outis
France is one of them, even have competing interests between
different creditor groups. So within out Ease France, there's obviously
some creditors that are solely in the senior secure debt
and there are some that are in the subordinated debt
as well. And if you're trying to preserve value in
(23:19):
one area, it means you have to give up more
value in another area, and you end up having some
creditor on creditor violence as well, and certainly see you
there's instances where that can happen. You know, every each
of these restructurings have their own unique circumstances at the
(23:40):
root cause of it, although, has been a combination of
higher interest rates, weak financial performance, poor documentation.
Speaker 1 (23:51):
We talked to a big investor in Europe not that
long ago, a couple of episodes ago about you know,
the risks to credit markets. We always bring those up,
and it's she said her biggest concern she's based in
Europe was the spread of credits or on credit of
violence from the US to Europe. As you just mentioned,
aiden this is kind of like, you know, the beginning
(24:13):
of it potentially. I don't know. Do you think this
marks the beginning of the spread of this to Europe.
Speaker 3 (24:20):
Well, we certainly are seeing it in capital structures where
there is a big US component, as in there are
a lot of US investors and advisors that are used
to do these tactics. I don't know if when we
It's true that one of the issues about doing it
in Europe is that you never wanted to be the
(24:42):
first one to try. You wanted someone to try and
fail first, and then if it didn't fail, then you
would think about it. We'll see. Another reason why in
Europe it doesn't tend to work is because the market
is smaller. That's if that's that's a theory. The market
(25:02):
is smaller and people tend to be where investors tend
to be nicer to each other because they see each
other more often, perhaps than in the US. I don't
know if that's that true, but we'll we'll see if
that's really the beginning of a more aggressive trend in
Europe or if it's used an exception for like huge
(25:23):
capital structures where this is just like more more prone
to happen.
Speaker 1 (25:29):
You'll probably find out, Irony, you're you're here in New
York for three months, usually based on your you'll find
out whether people here are more aggressive than they are
in Europe. What do you think? Do you think that's
reasonable sumption that the market there is a is a
is a kind of one.
Speaker 4 (25:44):
Yeah. I would just echo what Ironie said, which is
that I mean there's some fear among investors that you know,
some of these kind of more aggressive US style tactics
are coming over here. But you know, the CLO market
in particular is very small. Everyone knows each other. I mean,
(26:04):
we'll see, right, And.
Speaker 1 (26:06):
So as as Aiden said that there may be others
in the same boat, are there any other situations out
there that we think are going to go the same way?
Speaker 3 (26:15):
In Europe there's introm that could potentially clay or try
to play creators against each other. It's still early days
and there's no plan on the table yet, but in
that case there is. There are two groups as well,
and they have different interests depending on the maturities of
(26:37):
the dead that they hold. If the company will use
it to try to extract as much value as possible.
Speaker 1 (26:45):
Will we'll see longer term. Does this kind of put
pressure on covenants or on documentation or do you think
people just kind of will will move on.
Speaker 4 (26:57):
I mean, something that I heard yesterday from some of
the banks was that at least a few banks are
being a bit more cautious around underwriting new LBOs after
you know, kind of what they're seeing in terms of
what's going on with alties fronts, so not necessarily on leverage,
(27:18):
but they're being kind of much more cognizant about keeping
investor protections intact, so you know, maybe in some cases
stepping back from deals where sponsors are being too aggressive
on some of the baskets, so especially around dividend distribution
baskets and you know, company's ability to sell assets without
(27:41):
paying down debt. So I thought that was kind of
interesting that this is, you know, spiraling out in some
senses to the way people are looking at new leverage buyouts.
Speaker 3 (27:54):
I think at the end of the day, it will
depend on offer and demand, because this could be an issue.
It was something known and investors bought it anyways because
the demand was so strong, they didn't really have the
negotiating power to push back when they do, like we
do see it in the market that when they do,
(28:15):
they do push back and they get better terms. But
in general, I wouldn't be surprised if in the next
months or next year we start seeing loose documentation again
just because of a matter of for and demand.
Speaker 1 (28:33):
It sounds to me, based on what you're all saying,
is Altias kind of has the upper hand here. Is
that fair to an.
Speaker 3 (28:40):
Extent, yes, although I was having this discussion with some
investors and the idea seems to be also that he
kind of needs to be not too bad with at
least part of his investor is because they're also involved
in alts Us, so he kind of he can be mean,
(29:02):
but just to an extent, I guess.
Speaker 2 (29:06):
I think this series that he has the upper hand
comes to the point that he's holding the media and
then Data Center proceeds as a sort of a carrot
for investors to agree to this haircut, and it makes
a big difference to the size of the haircut that
(29:26):
you need to take. You know, we ran some scenarios
in our research. We looked at, well, what's the worst
case scenario if they want to get leverage below four times,
and those proceeds from those disposals are not recontributed, then
you'd be looking at a subordinated debt haircut of around
seventy percent and a senior debt haircut of around forty.
(29:48):
Now bear in mind, if you're a senior debt holder,
recovery values probably around eighty percent at the moment if
you wiped out the equity and subs, so that would
be a bitter pill for probably too bitter a pill
maybe the senior debt holders to swallow. If you put
those disposal proceeds back into the group, then the senior
debt haircut is nearer to twenty five percent. And if
(30:12):
you said, actually four and a half times leverage is
okay instead of four times as well, you're getting down
to fifteen to twenty percent, which is, you know, where
the bonds are kind of already pricing in, so that
might not be seen as quite such a bit of
pill by the senior debt holders. So I think that's
why people are saying that you know, he's holding a
(30:33):
lot of the cards because he can decide what to
do with those those proceeds, and that will have a
big influence on the negotiation. Bondholders do have some cards
of their own to play, particularly the senior holders. I
don't think the subordinated debt holders have a huge amount
(30:53):
of leverage, but the senior debt holders have maybe two
things in their favor. One is the fact that if
this went into a full restructuring, their recovery value is
probably eighty percent or better. And the second one is
that there is a maturity clock that's ticking that could
potentially get you there in twenty twenty five if there
was no agreement.
Speaker 1 (31:15):
And really, why does the US side of the matter.
Speaker 3 (31:18):
They will have to negotiate refinancing there as well at
some point, not that it's urgent in any case, but
there is part of the investor who is that it's
involved in Artist France is involved in Altis US as well.
Speaker 1 (31:30):
Okay, And when you talk to the company, what do
they say, How do they defend themselves?
Speaker 3 (31:35):
I don't think they feel like they need to defend themselves.
And what was interesting was what I was mentioning earlier
about Drying the calls is that he was in the
calls last year to explain that Altis was a victim
of the fraud, but he didn't show up in the
calls where investors were at all about the haircut, so
that I found was an interesting move from him. But
(31:59):
now the company is like, we we need to cut
leverage and this is how we plan to do it.
Speaker 1 (32:05):
But when you talk about bait and switch, bully boy tactics,
Genger towers, I mean, what do they say.
Speaker 3 (32:11):
They don't seem to disagree. They don't push back at
the very least.
Speaker 1 (32:17):
Okay, So I'll ask all of you just to wrap
things like what's the next thing to watch for here
and why? Probably starting with aiden, you know, final thoughts.
Speaker 2 (32:26):
Yeah, I think it's the negotiations between the company and
the various creditor groups. You know, I ran through the
debt haircut scenarios already. We said in our note that
it feels like that there is, you know, some room
for compromise, given that that you have those proceeds out there,
(32:50):
given that recovery values in the senior dad are probably
that better than those implied by what would happen if
if you were to try and force leverage all the
way down to where the company wants it. So I
think you need to let those those investor groups forms
and those negotiations to start between the company to see
if they can reach a compromise somewhere in the middle.
Speaker 1 (33:12):
Is there a calendar for that or a trigger or
some kind of date that we're looking for particularly or
is it fluid?
Speaker 2 (33:18):
I think that's still relatively fluid. Obviously, you have the
deadlines on that were mentioned before and some of the
creditor agreements. But I think it will take some time.
You know, the maturity cliff is more in twenty twenty
five rather than this year, so there's time for those
negotiations to happen.
Speaker 3 (33:35):
Yeah, they have two once maturing January in February. I
think it is next year. But the interesting thing is
that everyone is expecting this to take some time.
Speaker 1 (33:48):
Okay, so get some popcorns, settle back. But is there
anything on your short term radar at any that you're
looking at.
Speaker 3 (33:56):
Well as at sales, what's happening with the sfar in particular,
or It's interesting because in that one they were looking
more into a minority stake sale. You don't really find
easily someone that is willing to have a minority stake
in a company where a Dragi has the driving seat.
(34:16):
That's put it that way.
Speaker 1 (34:18):
I don't know final thoughts.
Speaker 4 (34:21):
I mean, I guess I'm interested in how this is
going to play out on a broader scale. You know,
there are a lot of these bloated cap structures out
in the market, which is having you know, kind of
an outsized impact on investors. You know, the high yield
market has shrunk while these capital structures have grown. So
it would be interesting to see whether this is going
(34:41):
to hit you know, like I said before, the real
economy where it's you know, riskier businesses are finding it
more difficult to refinance, especially at a time when interest
rates have surged, and if we're going to see a
lot more investor caution around say other of these kind
of large say maybe like be three rated structures and
(35:02):
potential downgrades.
Speaker 1 (35:04):
Great stuff. Ellen Duncan with Bloomberg News, Ierni Garthia Pees
also the Bloomberg News, and Aidan Cheslin from Bloomberg Intelligence,
thank you so much for joining.
Speaker 3 (35:13):
Us, Thank you for having us, Thank you, thank you.
Speaker 1 (35:17):
Check out all of Aidan Cheslin's excellent analysis on the
Bloomberg terminal, and you really do need to be following
the great work by Ireni Garthia Pees and Elenor Duncan
at Bloomberg News, Market Moving Scoops on the Terminal and
at Bloomberg dot com. And please do subscribe wherever you
get your podcasts. We're on Apple, Spotify and all other
(35:37):
good podcast providers, including the Bloomberg Terminal. Give us a review,
tell your friends, or email me directly at Jcrombie eight
at Bloomberg dot net. I'm James Crombie. It's been a
pleasure having you join us again next week on the
Credit Edge
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