Billionaire Drahi comes out fighting as creditors fall through ‘trap doors’
Lenders to Franco-Israeli tycoon’s Altice empire are guessing his next move after falling victim to an aggressive restructuring
For the past few years Patrick Drahi has had his back against the wall. The end of the low-interest-rate era turned the screw on the buccaneering billionaire, who had loaded up his Altice telecoms empire with more than $60bn of cheap debt.
But in the aftermath of last week’s Thanksgiving celebrations Drahi launched a fightback that stunned Altice’s many creditors, who were served up a turkey of a restructuring they neither expected nor wanted.
Altice International, a subsidiary that owes more than €8bn, stripped assets away from creditors in a transaction regarded by European debt investors as one of the most aggressive in living memory.
That came swiftly after Altice US, which sits on more than $26bn of debt, initiated legal action against creditors. Some of the world’s most powerful asset managers, including Apollo and BlackRock, stand accused of colluding to force it into bankruptcy.
Drahi’s aggressive debt issuance over the past two decades has earned the Franco-Israeli industrialist royalty status in the junk bond market.
That codependence, and a comparatively amicable restructuring agreed with lenders to Drahi’s French business in February, had raised hopes that creditors to other corners of an empire that stretches from the US to Portugal and Israel could escape with limited losses.
But last week’s events have underlined that the 62-year-old telecoms tycoon has no intention of easing the pain for the institutions that fuelled his growth, as he aims to wriggle out from under a mountain of debt.
“People thought he [Drahi] was aggressive in France, but he has seemingly ratcheted it up a notch,” said New Street Research analyst Russell Waller.
Drahi built his telecoms empire off the back of heavy borrowing at low interest rates, notably raising $16.7bn in the largest ever high-yield bond deal to finance a takeover of SFR, one of France’s main telecoms providers, in 2014.
But in the current higher rate environment Altice has been forced to consider widespread asset sales to reduce its debt pile.
An unpredictable situation was further complicated by the arrest of Drahi’s longtime lieutenant, Armando Pereira, on suspicion of defrauding the company in 2023. Pereira denies wrongdoing.
French authorities intensified their probe last month, raiding companies and properties across the country to gather evidence of what the prosecutor described as a “vast, corrupt system” that operated to the detriment of Altice.
Drahi’s battles with creditors are taking place against the backdrop of a potential dismantling of his wider empire. He has already rejected a €17bn bid for French mobile operator SFR and is expected to receive offers for Altice’s €7bn French fibre network XpFibre early next year. Several approaches for Altice Portugal have so far failed.
Signs of what was to come for creditors to Drahi’s US business began to emerge when Altice hired law firm Kirkland & Ellis, which has a reputation for advising companies to deploy hostile restructuring tactics.
The litigation launched last week was the first instance of a company alleging creditors violated US antitrust law in a debt restructuring. Many of the lenders in that group — which also includes Ares Management and Oaktree Capital — are exposed to multiple Altice entities.
Drahi’s next salvo came just days later, when Altice International announced that it would be shifting assets that contribute about 80 per cent of its €1.6bn of earnings out of the creditors’ pool of collateral, in a transaction known as a “drop down”.
One high-yield bond investor said the move was “really pushing the frontier” of such transactions, which designate subsidiaries as “unrestricted”.
Drahi’s lieutenants had in February threatened to restructure its French business in a similar fashion, but ended up backing down and agreeing to a deal that involved handing a 45 per cent stake in the company to creditors, in exchange for a substantial debt writedown.
Lenders to Altice’s Luxembourg-based international business, where creditor protections are weaker than in France, were ultimately more vulnerable to aggressive action.
In the aftermath some of Altice International’s top ranking bonds fell by as much as 12 per cent on Monday morning, from 75 cents on the euro to 66 cents. Two of its junior bonds fell from around 35 cents on the euro to just over 16 and 19 cents respectively.
An Altice bondholder said that by suing US creditors Drahi was sending a “warning” to the lenders to the group’s international business, who are being advised by US law firm Gibson Dunn.
Drahi “wants as big an impact on the [bond] price as possible and to scare investors as much as possible,” the bondholder said.
The man pulling the strings for Drahi in his latest restructuring is Dennis Okhuijsen, a hard-headed lieutenant who handled the negotiations with creditors to Altice France, according to two people familiar with the matter.
“Dennis is the guy who levered up all of Patrick’s assets and who put the debt structures in place — he is now back to help unravel it all,” said an executive familiar with the arrangements.
The person added that Okhuijsen is helping Drahi use all the “trap doors” he built into the agreements, at a time when bond investors’ discipline on enforcing strict covenants was weak.
After falling through those trap doors creditors are scrambling to figure out Drahi’s next move. Top of mind is understanding whether the billionaire will use his newly liberated assets to raise more debt, pay himself a dividend or sell them entirely.
Waller at New Street Research believes Drahi’s gambit was likely an attempt to force lenders to come to the table and agree a restructuring, in effect a new spin on the same tactics Drahi deployed in France.
By moving Altice’s Portuguese and Dominican operations outside of the restricted group, creditors have been left with about €300mn of earnings underpinning their €8bn of debt.
“That is clearly unsustainable,” Waller said. “He will probably move those assets back into the restricted group and in return, creditors will agree to a write down.”
As well as moving the assets away from creditors, Altice announced that its Portuguese business had raised €750mn of new debt through “a private financing transaction” to pay upcoming liabilities of the wider international business, as well as for general working capital purposes.
Altice International also said that it could raise another €2bn of new debt at Altice Portugal to follow the transaction.
CreditSights analyst Mark Chapman said Drahi holds “most of the cards, with limited scope for the creditors to fight back hard”.
But one industry executive reckons they will not go down without a fight.
“It’s going to end up in court . . . it will go on and on and on,” he predicted, adding that while Drahi will still “have his yacht and have a billion in the bank”, he may end up as somebody “nobody wants to lend any money to”.
