The TLDR:

Altice France has significantly more than $10bn capacity to designate current restricted subsidiaries as unrestricted in the future. In those circumstances, the asset sales covenant in the bonds no longer applies — that means the company can choose not to use asset sale proceeds for debt repurchases at all, but it also means that if it does buy back debt, it can structure the transaction however it likes.

This is important, because the group is looking to ‘organically and inorganically’ deleverage. The inorganic element of that, and how they go about it, is what’s interesting.

So, it looks like there will be more of these designations to come. There are three primary things which are relevant in this context once a subsidiary is unrestricted and sitting outside the credit box:

• De-leveraging: Asset sale proceeds can be applied towards de-leveraging (and paying down debt/entering into debt purchases as the group wishes)
• Priming transactions: This designation facilitates security and guarantee releases, meaning currently encumbered assets (or subsidiaries) could be used as security for new debt, like priming SSNs
• Dividends: Proceeds or assets could be distributed to shareholders without needing any dividend capacity

So: if this is all permitted by the bond documentation, what can bondholders hang their hat on to limit future leakage from the credit box? In this context, it will be directors’ duties, compliance and antecedent transaction risk.

On the earnings call, management said the de-leveraging would require ‘creditor participation’. That raises some important questions, which we’ll aim to answer in this piece:

• How will that be structured?
• How will it be implemented?
• Could Drahi retain an equity stake in this context?

Directors' duties

There are two elements here: directors failing to file when they should have, and directors doing transactions that they shouldn't have.

The duties which apply will turn on the law of the jurisdiction of incorporation of the applicable entity. Most entities are French, and so that's the position we’ve summarised below — but this should not be viewed as French law advice. The high-level takeaway is that it’s by no means certain these ‘guardrails’ provide much (or any) protection for creditors: the position turns on unknown variables. But creditors should be aware of the relevant considerations and armed with the correct questions to ask.

Failure to file / suspension of payments

There's an obligation to file for insolvency within 45 days of the occurrence of the 'suspension of payments' (this corresponds with cash flow insolvency — being unable to pay your debts as they fall due).

This is important for two reasons. First, because it can be used as a stick by creditors to drive a favourable outcome (by threatening to petition for a wind-up). Secondly, because it will form the basis for determining whether the business is solvent or not, and therefore the timings of any hardening periods for antecedent transaction analyses.

On the first point, this obligation is not as strictly applied as, for example, the equivalent obligation in Germany. In France, a distinction is drawn between 'negligence' and 'wilful mismanagement’. If the directors fail to file for insolvency proceedings within the required time period, it could be viewed as an act of wilful mismanagement, but only if the filing default was intentional. In those circumstances, directors may be personally liable for damage caused to creditors as a consequence of filing late (and they risk disqualification too).

This seems to be a pretty high bar, and appears more akin to English fraudulent trading than wrongfully trading. So directors probably don’t need to be nervous about personal liability, unless they are acting fraudulently in this context.

In any event, the business doesn’t seem to be cash-flow insolvent at present. However, there are a couple of mitigants to that view:

• The group does have significant forthcoming payments in the near-term: the balance (around €710m) of its January and February 2025 SSNs, as well as a $319m TLB due in June 2025 and a €205m TLB due in July 2025
• The group’s liquidity position (cash, undrawn RCF and asset sale proceeds, including Altice Media) is around €3.39bn. So there’s a significant buffer, unless you discount the asset sales proceeds from Altice Media and the other data centres (around €2bn)
• The group expects total revenue to decline further during FY 24, notably driven by the continued slowdown of construction activity; it expects EBITDA to decline by mid-single digits

For the purposes of antecedent transactions, whenever liquidation proceedings are opened, it will be for the court to determine the date on which the debtor is deemed to have become insolvent — which can be at any point during the 18 months preceding the date that the proceedings opened. So the look-back or hardening period in France is 18 months (24 months in relation to transactions for nil consideration), but the relevant period might actually be shorter.

Antecedent transactions

In France, certain transactions entered into by a debtor during the ‘hardening period’ are automatically void or voidable. Automatically void transactions include voluntary preferences and transfers of assets to trustees. Voidable transactions include payments or transfers made where those persons who dealt with the debtor were aware of its state of insolvency.

The relevant potential transactions here might be:

• Transfers of assets out of the credit box
• Priming transactions facilitated by transfers of assets out of the credit box
• Declarations of dividends by unrestricted subsidiaries following transfers of assets out of the credit box

The key questions are:

• Did the relevant transaction occur during the hardening period? That’s hard to answer, as it turns on whether and when the relevant entity was insolvent, which is not an easily determined bright line. It will be at any point during the 18 months (and if it’s for nil consideration, 24 months) prior to the commencement of proceedings.
• Assuming it did occur during the hardening period, does it constitute an automatically void or a voidable transaction? If the latter, the third party would need to have been aware that the relevant entity was insolvent at the time. Assuming the relevant transaction is a dividend to a shareholder (a related third party), it might be easier to prove that they were aware it was insolvent at the time

Implementation routes

The secured debt is barely covered. Compared to where public peers trade on a multiple basis, you can see that even secured leverage is above the EV/EBITDA multiples.

That means the unsecured debt is out of the money and the equity is underwater, which in turn means there needs to be a significant debt haircut, presumably with the unsecured debt being almost fully impaired.

Such a deal could be structured as a debt-for-equity swap or another form of deleveraging transaction (such as a partial debt-for-equity swap alongside an exchange offer and/or partial redemption).

There are three routes to a restructured debt stack, which are not mutually exclusive:

• Continued de-leveraging through asset sales and debt repurchases
• Consensual deal with bondholders within the framework of the debt documentation or a French conciliation process
• Non-consensual deal with bondholders using a restructuring implementation tool (putting to one side potential coercive exchange offers as an alternative)

We’ve already discussed the first route. We’ll now turn to the second two.

Consensual deal

This seems unlikely, for a variety of reasons. The various stakeholder groups do not appear to be aligned at present, and the underlying documentation requires 90%+ consent to make changes to economic terms (reducing principal, extending maturities).

There are also French processes that can be used to facilitate a consensual deal, but for these reasons, they are unlikely to be useful.

Non-consensual deal

France would be the likely forum for implementation of a non-consensual deal.

Almost all of the debt is issued by French companies (albeit under New York law), the vast majority of group assets are located in France or owned by French companies, and it is a business of strategic and infrastructural importance to France.

On that basis, there may be serious doubt that France would recognise a restructuring of the group’s indebtedness pursuant to the laws of another jurisdiction. Further, following implementation of the EU Directive 2019/1023 on preventive restructuring frameworks, France is a far easier jurisdiction in which to restructure.

The question then becomes: what processes are available? And the answer is: many! The key one, though, based on the facts and a capital structure of this nature, is the accelerated safeguard. Casino and Orpea have used this process, so it’s been tested on complex cap stacks before.

This process must be proposed by a solvent company, and cannot be started until a French conciliation (read: consensual) process has started and ended (which has an initial term of four months, extendable by up to one additional month). So that needs to be accounted for in the timetable.

The conciliation process is overseen by a court-appointed official.

Here are the key points of the accelerated safeguard:

• Timing: the process lasts initially for two months, but can be extended to a maximum of four months (following the conciliation, so up to nine months in total)
• Classes: the class test is slightly different to the English formulation for equivalent proceedings, with classes composed on the basis of ‘community of interests’ rather than rightsInterests are far more amorphous, and potentially more fickle, than rights — and so you can see circumstances in which this latitude is used by the group to their benefitIt’s worth noting that class composition can be challenged by the dissenting class but the timing is very tight — any appeals must be submitted immediately after classes have been composedWhat is clear is that secured creditors are separate from unsecured, and shareholders sit separately too; the result can be that there is a proliferation of classes (with pari ranking creditors sitting in separate classes), which can be important in the context of cross-class cram-down
• Voting: two-thirds in value in each class must approve (subject to cross-class cram-down, see below), a lower threshold than the UK Restructuring Plan (which is 75% in value)
• Cram-down: cross-class cram-down is available, meaning one or more dissenting classes (or even the shareholder) can be impaired even if they dissent. As in the UK, that’s subject to a couple of conditions, summarised below:A majority of impaired classes have approved the planAt least one of the affected classes (other than shareholders or OTM creditors) has voted for the planThe dissenting class is no worse off under the plan than it would be in (i) a compulsory liquidation (ii) a sale of the company or (iii) under a better alternative solution (this is very similar to the UK’s ‘no worse off test’ which has been tested in numerous restructuring plans in recent years). It’s worth flagging that the counterfactual here relates to the whole Altice France group (as opposed to just the restricted group). Valuation evidence will be crucial here, as has been the case in similar UK casesThe absolute priority rule is complied with (see below)

The absolute priority rule

This might be the tripwire here.

It basically means that Drahi probably can’t retain his equity stake in circumstances where unsecured creditors are impaired (or, more likely, wiped out). But this rule isn’t immutable: it can be deviated from in favour of shareholders if that treatment is deemed necessary to achieve the plan’s objectives, and if impaired parties do not see their rights ‘excessively affected’.

You can see a scenario where Drahi might assert that the re-contribution of proceeds from assets which have been moved out of the credit box back into the restricted group is, in effect, a fresh contribution that is needed for the purposes of the plan, and therefore he should retain his stake. The counter-argument is that, in real terms, it cannot amount to an incremental equity contribution because:

• It originally constituted assets/revenue previously available to the restricted group, which was moved out and then back in
• It would form part of the insolvency estate in a counterfactual insolvency (and therefore, in that scenario, be available to the creditors), and thus cannot be described as being an incremental contribution

One can, nonetheless, imagine this being a battleground if a plan is proposed.

Could the creditors propose a plan?

This might be difficult as, logically, the relevant debtor should propose or consent to the plan.

In order for creditors to lead a process, there must either be company consent (which would effectively in this scenario mean Drahi’s consent given he presumably has appointed the directors) or secured bondholders have enforced or have (e.g. following a default) removal and appointment rights in respect of directors.

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