(Bloomberg) -- Altice France SA suffered a second cut to its credit rating in two days, as S&P Global Ratings downgraded the struggling telecoms firm, adding further pressure on the collateralized loan obligations holding the debt. 

The downgrade on Thursday to CCC+ from B- was widely expected after the company told its creditors in a call with investors last week that they would need to accept haircuts to help it meet more aggressive leverage targets. Moody’s Ratings previously downgraded Altice France Holding SA and Altice France SA’s debt instruments to one of its lowest tiers. 

“We believe weak credit metrics, relatively muted prospects, and management’s reduced commitment to further deleverage unless lenders participate increase sustainability risks,” S&P analysts wrote in the note. 

The €24 billion ($26 billion) debt burden of Altice France makes it one of the most significant names in leveraged finance, with the company’s bonds featuring prominently in CLOs and high-yield funds across Europe and the US. Billionaire owner Patrick Drahi levered up the Altice empire dramatically during the period of low interest rates, and now the downgrades highlight how a sustained period of tighter monetary policy is ramping up the pressure on highly-indebted borrowers.

Listen: Altice Stress Weighs on CLO Market, Sound Point Says (Podcast)

For Sale

With a $60 billion debt pile across three businesses in the US and Europe, all of Altice’s assets — across its France, US and International units — are up for sale, Drahi told creditors back in September.

Altice France recently agreed the sale of most of its data centers and its media business. But the company’s management told creditors last week that the proceeds of these transactions sit outside the restricted group, meaning they are currently out of their reach. If creditors consent to take part in discounted transactions, the firm would consider putting those proceeds in the mix, they said. 

The asset disposal is part of a plan the management has outlined to bring down a reported debt ratio of 6.4 times earnings before interest, taxes, depreciation and amortization at the end of 2023 to under 4 times. 

In its Thursday note S&P included a “developing” outlook to its the decision, indicating that it could lower the rating if the risk of a distressed exchange on the secured debt rises, or upgrade it if the company deleverages using the proceeds of its asset sales and without substantial discounts for secured debt.

Read more: How Altice Can Push Its Creditors to Cut Billions of Debt: Q&A

CLO Impact

CLOs, a crucial buyer of leveraged loans and a player in the high-yield bonds space, have strict limits on how much of the riskiest junk debt they can hold. The downgrades don’t trigger sales automatically, but if the share of CCC-rated debt a CLO holds goes over a specific threshold, the excess share needs to be marked to market. 

That means marking down the collateral value of the vehicle, potentially diverting cashflow from the equity portion — the riskiest part of the CLO — to delever the debt in the structure. 

S&P Ratings Global said all but 2% of the European CLOs it rates hold Altice France debt. But even a default by Altice France, or a credit rating downgrade would have limited repercussions for CLOs’ performances, the ratings firm said in a separate note published on Wednesday. 

One potential consequence of the downgrade, given Altice France’s significance in terms of European junk-grade debt, is that other companies with weaker ratings would have fewer buyers. High-yield funds also have restrictions on the share of CCC-rated credits they can hold, although they do have more flexibility than CLOs to sell their positions. 

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