Altice International - Uncertainty Remains - Model Update - Positioning
All,
Please find our updated analysis on Altice International here.
The next steps at Altice International have taken longer than we expected. In December last year, the company executed an aggressive "drop down" transaction, moving the Portuguese and Dominican assets out of the collateral pool and designating them as unrestricted subsidiaries. This transaction allowed Altice Portugal to raise 750 million euros of cash, effectively senior to existing debt, and use the proceeds to repay term loans maturing in January 2026. Since then, press speculation around a sale of the Portuguese assets has remained very limited, despite this forming the basis of our original investment thesis.
Investment Rationale
- We are exiting our 0.8% of NAV position in the Altice International subordinated bonds at 25c. Following the "drop down" transaction, the bonds sold off sharply to yields of 15-16c, which we initially viewed as an overreaction. As time has passed without progress on asset sales or constructive engagement with creditors, we now see a deterioration in the risk-reward profile and have decided to exit the position. We are foregoing the small chance that significant cross-holdings will put us back in the money if the co-operation agreement holds.
- The downside risk for the subordinated bonds comes from the risk of an aggressive restructuring. In this scenario, Drahi and management could seek to entice senior secured lenders into a transaction that partially elevates certain liabilities into the Altice France entity. Such a structure could ultimately enable a full write-down of the subordinated bonds through orphaning or a pre-pack restructuring. Under this outcome, the bonds could trade to single-digit prices. We do not expect significant cross-ownership between senior and subordinated bondholders, which further weakens the negotiating position of subordinated holders.
- Upside for the subordinated bonds depends on a near-term sale of the Portuguese assets ahead of any restructuring proposal. We now believe management will prioritise a restructuring solution before pursuing asset disposals, which materially reduces the likelihood of this upside scenario.
LME Potentials:
- Before the “drop down” transactions, our base case expectations were an Amend & Extend for the Senior Secured Debt, with a partial right down, and a debt conversion of the subordinated debt into a minority stake in Altice International. The "drop down” has struck a more aggressive tone, and although negotiations have not commenced with the potential to raise further debt at Altice Portugal, it is easy to envisage that Senior Secured Holders will be offered the ability to “elevate” their holdings to Altice Portugal in return for some kind of prepack restructuring.
- Our recapitalisation assumptions are one of many options to be negotiated between senior creditors and the Company. The subordinated holders are observers in any discussions.
- The working thesis of our recap table is based on the Senior Secured Lenders being offered to elevate some of the debt up to the Altice Portugal entity. We assume the €2bn potential debt at Altice Portugal is used to uptier c.25% of the senior secured debt, and reinstate 50% at the Altice International level. This leaves c.25% to be converted via debt/equity swap. 100% of the Altice International Unsecured bondholders would also be converted.
- In line with the Altice France restructuring, Drahi retains 50% of the restructured equity, with the balance split between Senior and Unsecured credits. 40% and 10% respectively.
- At our valuation of c. €6.6bn, plus cash, this implies 75% recovery for Secured lenders and 2% recovery for Unsecured lenders. Our valuation is low, but given the movement of assets, we see this as prudent.
Valuations:
- This remains a largely theoretical exercise, as Altice entities consistently provide incomplete segment disclosure. We value all three divisions using a DCF framework, anchored to reported operating data. We assume modest subscriber growth across the businesses and do not factor in any meaningful cost reductions over the forecast period.
- We assume flat to modest EBITDA growth in Portugal and value the business at approximately 5.8x, or €5.5bn. Israel shows a similar EBITDA growth profile, but we apply a lower multiple of 3.9x, or €1.2bn, to reflect the higher risk-free rate. All valuations reference FY25 actual EBITDA.
- Together, these assets imply a combined enterprise value of €6.7bn. We exclude Teads from the sum of the parts, given the depressed valuation of the equity stake held by Altice International.
- Historically, investors viewed Fastfiber as a potential asset sale to support deleveraging at Altice International. We exclude Fastfiber from the sum of the parts because Altice Portugal already incorporates it within its segment reporting. Assigning a standalone value to Fastfiber would result in double-counting.
Legal:
- Altice International executed a coordinated Portugal and Dominican Republic "drop down", removing c.75% of consolidated EBITDA from the senior secured guarantor perimeter in a single, unresolved transaction.
- Senior secured noteholders have organised into a co op and are negotiating directly with Drahi on unwind and value return terms, with both sides acutely aware of the balance of leverage.
- Drahi’s base case is a consensual settlement with the senior co op at par to par plus on extended maturities, supported by the credible threat of further silo leverage and a US Chapter 11 filing.
- Any agreement between Drahi and the senior co op materially disadvantages the Altice Finco 2028 subordinated notes, which face severe impairment in a consensual deal and a near 100% loss under Chapter 11.
- The outcome hinges on senior alignment rather than operating performance, leaving the subordinated bonds with limited negotiating power.
Happy to discuss
Tomás
E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk