Telecommunications giant Altice is currently grappling with a debt burden exceeding $60 billion, causing significant concern among investors. The company, co-founded by billionaire Patrick Drahi, has accrued this substantial debt through years of aggressive acquisitions fueled by cheap money. Altice's empire includes major telecoms operators in France, Portugal, Israel, and the Dominican Republic, as well as activities in advertising, entertainment, and media.
The debt is divided between Altice's three main entities: Altice France, Altice International, and Altice USA, with repercussions felt by creditors across the board. However, it is in Europe, where Altice represents a significant portion of the high-yield market, that the pain is particularly acute.
Investors are growing increasingly worried about Altice's ability to repay its creditors, especially considering the rising borrowing costs and weak free cash flow generation. While the company does not have immediate debt obligations, the escalating costs of borrowing and uncertain cash flow raise concerns about its future financial stability.
Complicating matters further is a corruption investigation that has led to the arrest of Altice co-founder and former chief operating officer, Armando Pereira. Pereira's arrest has resulted in further plummeting of Altice's bond prices. In an attempt to reassure investors, Patrick Drahi, the controlling shareholder of Altice International and Altice France, will participate in the upcoming second quarter earnings conference calls to emphasize that the alleged corruption case has victimized the company rather than implicating it.
However, the combination of ongoing uncertainty surrounding the corruption investigation and Altice's substantial debt load is deterring potential investors. Many questions remain unanswered about the investigation's scope and impact on the company, as well as Drahi's knowledge and involvement in the alleged corruption, given Pereira's close relationship with him as a co-founder and long-standing associate.
In a recent refinancing, Altice assured investors that proceeds from asset sales would be used to repay debt. The upcoming earnings report is expected to provide an update on the sale of Altice's data centers business, which could potentially alleviate some of the debt burden. However, even if the business achieves the desired €1 billion valuation, it may not drastically alter the overall financial landscape due to the size of the company's capital structure. Nevertheless, using the proceeds to pay down debt rather than distributing dividends to shareholders could send a positive signal to the market.
In Portugal, where the corruption investigation is focused, prosecutors suspect that procurement decisions made at Altice were rigged in ways that harmed the company's own subsidiaries and competitors. Pereira, who is currently under house arrest, maintains his innocence while his lawyers contend that he is not involved in any wrongdoing.
The combination of Altice's mounting debt and the ongoing corruption investigation has created a challenging environment for the company and its investors. Uncertainty looms large, requiring Altice to address its borrowing costs, generate stronger cash flows, and provide clarity regarding the allegations surrounding the corruption case.