Altice France’s Credit Rating Cut Into Danger Zone for CLOs

Eleanor Duncan, Bloomberg News

The Altice campus office building in Paris, France. Photographer: Benjamin Girette/Bloomberg , Bloomberg

(Bloomberg) -- Moody’s Ratings cut Altice France Holding SA’s credit rating to one of its lowest tiers, a move that threatens to wreak havoc on collateralized loan obligations holding the company’s debt.

The two-step downgrade of the parent company to Caa2 from B3 follows Altice France’s recent earnings announcement, where the company said it was expecting revenue decline and would need creditors to participate in discounted transactions to help reduce leverage, Moody’s analysts wrote in a note Wednesday.

CLOs, a crucial buyer of leveraged loans, have strict limits on how much of the riskiest junk debt they can hold and may look to quickly offload the debt. The company still has a higher B- grade from S&P Global Ratings.

Moody’s said the downgrade reflects the company’s unsustainable capital structure — due to its high leverage and weak free cashflow, particularly in a high interest rate environment — as well as the competitive nature of the French market, the complexity of the group structure and its high appetite for leverage, and its weak liquidity owing to the large financing needs from 2025 onwards.

“The company’s probability of default has materially increased, given that its capital structure is unsustainable at current interest rates,” Ernesto Bisagno, a vice president at Moody’s Ratings, wrote in the note. The firm’s “operating performance and credit metrics will be weaker than we initially expected.”

Altice France, one of three silos of billionaire Patrick Drahi’s telecommunications empire, reported a debt ratio of 6.2 times its earnings at the end of 2023, and is aiming to bring leverage down to below 4-times earnings before interest, taxes, depreciation and amortization.

The company is racing against the clock to reduce its increasingly unsustainable debt pile while facing a preliminary probe into allegations for corruption at the wider Altice conglomerate.

Some Altice France bonds were among the biggest decliners in secondary trading Wednesday. The company’s 8.125% bonds due 2027 last changed hands at about 79 cents on the dollar — 2 cents lower on the day — as of 3:30 p.m. in New York, according to pricing source Trace.

(Adds bond pricing in final paragraph. A previous version corrected entity downgraded in first paragraph.)