The company disclosed on 28 May 2024 that it had contributed its shares in XpFibre and some receivables from XpFibre into a new unrestricted holding company. In what was labelled as not material by the company in its cleansing statement, the company noted it informed the AHG that the equity interest in XpFibre is now held by a “lateral affiliate of the Company, which lateral affiliate is neither (i) part of the Company’s restricted group, (ii) Altice France Holding S.A., nor (iii) a subsidiary of Altice France Holding S.A.”.

In other words, Altice’s 50.1% XpFibre equity stake is now unconsolidated from Altice France. This means it wouldn’t form part of the Altice France insolvency estate, we believe. We disagree with the company — this is material.

XpFibre is a prized asset, but this admission carries greater weight because we know the joint venture between Altice and OMERS, Allianz and AXA recently completed a jumbo dividend recap which paid the sponsors a €1.6bn distribution, per 9fin’s understanding. This means the unconsolidated entity which holds Altice’s 50.1% stake in XpFibre could be sitting on its €800m share of the dividend distribution. As it sits outside the insolvency estate, Patrick Drahi could feasibly offer to “re-contribute” the cash to facilitate the transaction and/or as a form of new equity contribution. Similarly, the cleansing statement says it was assumed as part of discussions that the unconsolidated interest in XpFibre would be included in the “transaction perimeter”. We interpret this to mean it was assumed Drahi would re-contribute the XpFibre stake to the Altice France restricted group as part of any envisaged transaction.

Separately, the growth trajectory and future prospective equity value of XpFibre, and by consequence Altice’s stake, is significant. Based on disclosures in the company Q2 23 results presentation, XpFibre is targeting a mid-term financial profile of €900m revenue and €600m EBITDA. We don’t know what FY 23 EBITDA XpFibre generated, but management was guiding €300m for FY 23 at the time and added EBITDA should grow by roughly €100m each year.

Extrapolating this expectation, EBITDA could hit the mid-term target of €600m in FY 26. FibreCos are typically valued with an EBITDA multiple in the high teens given the high levels of cash conversion, as discussed in previous 9fin analysis. If we assume €4.2bn of drawn debt as of the dividend recap close grows to €5bn by FY 26 and based on an EV multiple of 15x, XpFibre equity value could be €4bn, of which Altice holds €2bn (50%).

Drahi could opt to not re-contribute the unconsolidated XpFibre equity stake, and possibly the €800m of cash from the dividend recap, and keep it away from the insolvency estate if a mutual deal cannot be found. That is one of the threats facing creditors but there are risks for Drahi too. You’ll find more details and explanation here, but in summary Drahi would need to ensure Altice France remains solvent for a duration sufficient to preclude antecedent transaction clawback risk. It’s intricate and nuanced, which is why we suggest you read our deeper look at this topic, but as a frame of reference the look-back or hardening period in France is 18 months, though the ‘relevant period’ may be shorter.

It’s been reported the company has been in discussions with third parties regarding raising financing against unencumbered assets, and this remains a threat to restricted group creditors. Drahi may be able to contribute unrestricted asset sale cash and funds raised from third-party debt to cover 2025 and 2026 maturities and ensure solvency of the restricted group through to 2027. Of course there’s litigation risk to consider here.

In reality, this is as much game theory as it is distinct possibilities. It’s in the best interest of all parties to come back to the table to reach a mutual deal. That’s not to say we think this is a done deal or that we’re not intrigued by the game theory elements.

But allow us to entertain the game theory for a second.

Equity value is relatively small in both the company’s and AHG’s proposal, as we show in more detail below. When extrapolating the logic out you can see why Drahi is clearly reluctant to budge and is playing hardball with XpFibre. Under the company’s proposal Drahi’s remaining equity value is €2.34bn whereas under AHG's proposal with a greater amount of debt and a higher dilution for Drahi this number is just €1.43bn, per our estimates below.

Drahi’s personal family holding owns more than 90% of Altice France through Next Alt with the remaining less than 10% belonging to management and families. For simplicity we have grouped these together.

Speaking theoretically, with XpFibre HoldCo away from Altice France if he can avoid the 18-month look-back or hardening period he could avoid a clawback of the asset. But that’s not the only unrestricted asset value available.

We assume the €3.38bn of cash from asset sales still remains unrestricted and will do so until a deal is potentially agreed. If Drahi wants to go down this route he could use ~€2bn of said cash to cover Altice France’s maturities over the following 18 months. This would leave him with an additional €1.38bn that could follow XpFibre HoldCo away from Altice France.

When compared with the deals on the table the €3.38bn of potential value that Drahi could extract if he is able to avoid any clawbacks is far more attractive. In fairness this also assumes Altice France will avoid burning cash which isn’t a guarantee but with a €1bn cushion on top of what the company’s proposal yields for him this is still feasible.

Market reaction

The market response to the full disclosures, including the competing proposals, has been understandably limited. Most of the company’s secured debt maturing beyond 2025, with some exceptions, has converged towards a cash price of around 75 since management delivered its ultimatum during Q4 23 earnings on 20 March (Q2 24 cap table available here). You can see a list of all instruments and their respective cash price movements today here.

The exceptions alluded to above include three 2027 SSNs which are still trading between five and eight points higher, at cash prices between 80 and 83 (see all SSNs here). On the loans side, the two stub 2026 TLBs in the cap stack are also indicated in the mid-80s, though we note they may not be very liquid. As a point of reference, the company’s final proposal included 83.5 cents in cash and take-back paper as well as 18% equity, while the AHG’s proposal asked for 3.5 cents more in the form of more expensive take-back paper.

There are two SSNs and two stub TLBs maturing 2025 (see full cap structure here) that are still trading close to par as they will likely need to be addressed separately given their imminent maturities. However, as you will see below, it’s not explicitly clear if Altice has the cash available to fund redemption of 2025 maturities and fully cover envisaged cash redemptions of the rest of the cap stack.

Finally, the four SUNs in the cap stack are still indicated at cash price levels roughly five to 12 points above the 20 point recovery envisaged by the company’s proposal. This comprises €215m of cash redemption (5% of €4.3bn nominal principal) and €645m of take-back SUNs (15% of nominal principal). This may be a function of illiquidity but could also reflect an expectation of some common equity participation. The cleansing statementsaid this is to be determined. There’s no clear reason in our minds why the four SUNs would trade at such divergent cash prices.

Why now?

Take your pick: the company is heading into blackout before Q3 earnings on 27 November; one or both parties need a break or reset; some creditors wanted to be freed up to trade; it’s a negotiation tactic being used by one or both sides.

Depending on whether there is a shared view a consensual deal can be reached and implemented out-of-court, a next step post-Q3 earnings may be to appoint a mandat-ad-hoc or conciliateur (conciliator) to further mediate negotiations. For more on the timeframes and requisite conditions for opening conciliation, and director duties and antecedent transaction considerations, take a look at our legal analysis from April.

9fin reported last week on there being points of contention to overcome, but from the release it’s not immediately clear what those are. Are hairs being split over 3.5 points difference between the company’s and AHG’s proposals? Surely not, at least not in isolation. Greater sticking point may be differences in equity components in the deal, and the difference in cost of debt between the two (discussed more below).

The AHG is asking for 34% of common equity or €2bn in preferred equity convertible into 20% of common equity. The company’s proposal offered 18% of common equity. We don’t see there being meaningful day-one equity value (more below) and it’s difficult to say with a high degree of certainty what future equity value could look like.

Then there is this somewhat ambiguous statement in the cleansing statement:

The AHG Final Proposal did not reflect the allocation of value amongst the creditors holding Altice France Secured Debt, which was not discussed between the AF Secured AHG and the Company.

Is this the company suggesting AHG creditors were not aligned on how value would be distributed among all secured creditors? Or perhaps it alludes to different potential outcomes for the secured loans and secured bonds in the cap stack. The description of the company’s proposal did not lay out the allocation of value among creditors, making the statement all the more difficult to interpret. You can read more about some of the game theory playing out in our recent report from 4 November.

As we said above, the market response today has been limited and the AHG are unlikely to be able to trade in material volume given they are party to a cooperation agreement that was extended to February 2026 from February 2025 after Elliot flipped to supporting the move.

Proposals

We have evaluated both proposals and creditors’ potential recoveries. In short, both see leverage at Altice France drop to around the mid-4x region with most of the post-restructuring equity value being driven by the re-inclusion of the unconsolidated interest in XpFibre.

We have estimated the recovery level for secured creditors - which comes in the form of part cash repayment, exchanged notes, and equity - is 86% under the company’s proposal and 91% under the AHG’s.

The most uncertain variable is that of prospective equity value. Using a range of Altice France’s European peers we have established a fair EV / EBITDAaL multiple of 4.6x (table below). This multiple excludes Deutsche Telekom, KPN, and Swisscom as they trade at premiums due to higher margins from operating in geographies with fewer competitors.

Due to the higher debt reduction under the company’s proposal this leaves a larger equity cushion at Altice France (albeit marginally) of €863m versus €169m under the AHG’s proposal. But alongside the XpFibre equity stake, these numbers increase to €2.86bn and €2.17bn, respectively.

We have valued XpFibre below on a forward-looking basis. Using an estimated €600m EBITDA (management's mid-term guidance) and a 15x EV/EBITDA multiple. This puts the FibreCo’s enterprise value at €9bn but with a recent recapitalisation which included raising €5.8bn of credit facilities (we have assumed €4.2bn of drawn debt will grow to €5bn by 2026) its forward-looking equity value is €4bn.

With Altice’s 50.01% equity stake in XpFibre being re-included in the ‘transaction perimeter’ as part of the proposal’s this adds €2bn of equity value.

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We have assumed that the RCF, which management guided will be €900m drawn at year-end, will simply be rolled without a haircut as part of the restructuring. For simplicity we have also included the group’s €1.24bn of secured 2025 debt in the calculations above.

This leaves €19.8bn of secured debt to receive cash at 13.3% (€2.63bn) and €4.2bn of unsecured debt which the company’s proposal states will see €215m of cash (we have assumed the same treatment for the unsecured debt in the AHG proposal).

This cash is coming out of the €3.68bn of ‘pre-transactional’ cash which includes ~€3.38bn in asset sale proceeds so would leave Altice France with €831m.

However, we note the table above does not account for a likely cash redemption of 2025 maturities, rather than their being subject to the exchange deal. If €1.24bn of the group’s €3.68bn of cash is used to repay the 25s (two SUNs and two stub TLBs) this leaves the group with €2.43bn proforma cash. This is not enough to pay the 13.3% (€2.46bn) consideration to the remaining €18.56bn nominal value of secured creditors (€19.8bn minus €1.24bn) and the €215m unsecured bonds cash payment.

We speculate what comprises the €3.38bn in asset sale proceeds and whether it includes the €800m from the XpFibre recap. With €2.55bn of asset sale proceeds expected from the disposal of Altice media, UltraEdge, and LaPoste (see here for more) the €800m gets us close to the €3.38bn number. However, if that is the case we wonder where the additional cash is coming from to cover the 2025 maturities and the expected cash recoveries. If it is not, then there is an €800m hole in what Altice claims to be ‘all announced disposals’ that we are not aware of.

Another consideration in the proposals is that of debt servicing. We estimate an annual difference in interest costs between the two proposals of €400m. The company proposed a 6.5% weighted averaged cost on its secured debt, whereas the AHG proposed a 7.5% weighted average cost on the euro-denominated debt with an equivalent spread on USD debt. We have assumed an RCF cost of 5.5% across both proposals and that the unsecured debt will charge a 250 basis points premium versus the weighted average cost of the secured debt.

Assuming the same EUR / USD split across the pre-restructuring debt stack will remain then this implies 62% of the secured debt will be the more expensive USD-denominated and the remaining 38% will be EUR-denominated. In the table below we have calculated the 9.66% cost of dollar debt in the AHG’s proposal by using the 7.5% euro cost, which is 532bps above the five year German bund and applying the spread to the five-year US treasury. For reference, we estimate the company’s 6.5% weighted average cost offer implies a ~300bps spread on take-back euro and dollar paper at the same weights as above (62% dollar; 38% euro).

The AHG’s proposal does not give Altice France any breathing room as management expected 2024’s annual interest payments to be ~€1.45bn. Creditors may have to offer some give on the ~530bps average spread for the take-back paper in their offer, however, given the risk involved in the structure, the limited equity cushion in either proposal, and Drahi’s track record of aggressively placing equity interests above creditors’, we think fair value is closer to the creditor proposal than the company’s.