1 00:00:17,960 --> 00:00:20,680 Speaker 1: Hello, and welcome to the Credit Edge, a weekly markets podcast. 2 00:00:20,760 --> 00:00:23,360 Speaker 1: My name is James Crumby. I'm a senior editor at Bloomberg. 3 00:00:23,720 --> 00:00:26,040 Speaker 1: This week, we're very pleased to welcome Aidan Cheslin from 4 00:00:26,079 --> 00:00:28,160 Speaker 1: Bloomberg Intelligence. How are you Aidenkay? 5 00:00:28,240 --> 00:00:30,160 Speaker 2: Thank you, James Hailing very. 6 00:00:30,000 --> 00:00:31,800 Speaker 1: Good, Thanks so much for joining us today. We're excited 7 00:00:31,840 --> 00:00:34,360 Speaker 1: to get your thoughts on the telecom sector, especially Altis. 8 00:00:35,360 --> 00:00:39,520 Speaker 1: Also delighted to welcome back Irene Garthia Pees with Bloomberg News. 9 00:00:39,560 --> 00:00:40,919 Speaker 1: Great to see you again, Ay, Ronny. 10 00:00:40,720 --> 00:00:42,240 Speaker 3: How are you glad to be here? 11 00:00:42,600 --> 00:00:45,479 Speaker 1: And also from Bloomberg News. Brilliant to see Eleanor Duncan, 12 00:00:45,520 --> 00:00:47,720 Speaker 1: who covers leverage finance in London. How's it going? 13 00:00:48,240 --> 00:00:49,480 Speaker 4: Thanks for having me. I'm good. 14 00:00:50,200 --> 00:00:53,120 Speaker 1: So we're here to talk about Altis. It's a sprawling 15 00:00:53,320 --> 00:00:57,040 Speaker 1: Europe based telecoms company with a colorful billionaire at the helm, 16 00:00:57,080 --> 00:01:00,760 Speaker 1: now tipping into distress. They have about sixty billion dollars 17 00:01:00,760 --> 00:01:02,720 Speaker 1: in debt and there's a fairly high chance of them 18 00:01:02,760 --> 00:01:05,760 Speaker 1: not paying it all back, which will affect a lot 19 00:01:05,760 --> 00:01:08,120 Speaker 1: of different types of investor and will weigh on the 20 00:01:08,120 --> 00:01:11,040 Speaker 1: sector and more broadly on credit markets, particularly in Europe. 21 00:01:11,600 --> 00:01:14,880 Speaker 1: It's a vast debt complex and a frequent issuer. They're 22 00:01:14,920 --> 00:01:17,920 Speaker 1: also doing some fairly creative maneuvers to try and shift 23 00:01:17,959 --> 00:01:20,360 Speaker 1: assets around the balance sheet and shield them from claims 24 00:01:20,400 --> 00:01:23,959 Speaker 1: if things do go bad, so called unrestricted subsidiaries. I'm 25 00:01:24,000 --> 00:01:26,800 Speaker 1: hoping one of you can help explain that and what 26 00:01:26,880 --> 00:01:29,400 Speaker 1: kind of precedent is being set here. But the sheer 27 00:01:29,480 --> 00:01:31,720 Speaker 1: volume of debt in a variety of currencies makes it 28 00:01:31,760 --> 00:01:35,240 Speaker 1: a widely held name by credit investors, hard to avoid 29 00:01:35,319 --> 00:01:37,880 Speaker 1: in the bond and loan market, and there are implications 30 00:01:37,880 --> 00:01:41,560 Speaker 1: too for collateralized loan obligations. So let's start there. Can 31 00:01:41,600 --> 00:01:43,800 Speaker 1: you speak to that eleanor what's the mood in the 32 00:01:43,840 --> 00:01:45,280 Speaker 1: market when you ask about Altis? 33 00:01:45,920 --> 00:01:50,920 Speaker 4: As you mentioned Artisse has, I mean especially Artist France. 34 00:01:50,960 --> 00:01:53,160 Speaker 4: So artist has an enormous debt pile of you know, 35 00:01:53,240 --> 00:01:57,120 Speaker 4: kind of around sixty billion dollars and Artist France has 36 00:01:57,160 --> 00:02:01,760 Speaker 4: about twenty four billion euros of that. So I think 37 00:02:02,280 --> 00:02:06,080 Speaker 4: some bank analysts are estimating that ninety percent of European 38 00:02:06,200 --> 00:02:11,840 Speaker 4: clos are exposed to Artis. So Artisa's troubles are impacting, 39 00:02:12,520 --> 00:02:16,560 Speaker 4: you know, the entire market. The issue is that when 40 00:02:17,040 --> 00:02:20,239 Speaker 4: you know now Moody's in S and P has downgraded 41 00:02:20,400 --> 00:02:24,320 Speaker 4: Artise France to triple C. The problem is that clos 42 00:02:24,320 --> 00:02:27,800 Speaker 4: are restricted in how much they can hold of, you know, 43 00:02:27,840 --> 00:02:30,639 Speaker 4: the kind of riskiest junk debt. I think it's something 44 00:02:30,760 --> 00:02:33,080 Speaker 4: like they're allowed to hold something like seven point five 45 00:02:33,160 --> 00:02:38,600 Speaker 4: percent in terms of their overall portfolios. So now there'll 46 00:02:38,639 --> 00:02:41,760 Speaker 4: be under pressure either you know, to sell Autie's debt 47 00:02:41,880 --> 00:02:45,119 Speaker 4: or maybe some of the higher priced triple C debt 48 00:02:45,120 --> 00:02:49,560 Speaker 4: that they have in their portfolios. The reason that that matters, 49 00:02:49,639 --> 00:02:53,040 Speaker 4: I guess in the broader leverage finance market is because 50 00:02:53,240 --> 00:02:56,919 Speaker 4: triples sorry, clos are a crucial cog of the market. 51 00:02:56,919 --> 00:03:01,200 Speaker 4: They're the biggest buyers of leverage loan and so this 52 00:03:01,320 --> 00:03:04,639 Speaker 4: might impact, you know, kind of how eager banks are 53 00:03:04,760 --> 00:03:09,040 Speaker 4: to underwrite new LBOs. It might also impact, you know, 54 00:03:09,120 --> 00:03:12,639 Speaker 4: how easy it is for some of the riskiest borrowers 55 00:03:12,680 --> 00:03:14,160 Speaker 4: to refinance their debt. 56 00:03:14,639 --> 00:03:16,360 Speaker 1: Just to make it easy for some of our readers 57 00:03:16,360 --> 00:03:20,799 Speaker 1: who don't know, clos, they basically buy leverage loans, which 58 00:03:20,800 --> 00:03:25,880 Speaker 1: are risky company loans, and they repackaged them into securities 59 00:03:25,919 --> 00:03:28,200 Speaker 1: and sell them at some different levels of risk, right 60 00:03:28,680 --> 00:03:32,160 Speaker 1: right exactly, And so in terms of like the impact 61 00:03:32,240 --> 00:03:35,520 Speaker 1: just one single name, one company is having this kind 62 00:03:35,560 --> 00:03:39,680 Speaker 1: of massive effect on Europe and also other parts of 63 00:03:39,720 --> 00:03:40,960 Speaker 1: the world. I mean we be saying the same in 64 00:03:40,960 --> 00:03:41,440 Speaker 1: the US. 65 00:03:41,720 --> 00:03:45,960 Speaker 4: Yeah. I think Bank of America analysts had that when 66 00:03:47,280 --> 00:03:51,760 Speaker 4: Artise France was downgraded to triple C, something like thirteen 67 00:03:51,880 --> 00:03:57,320 Speaker 4: percent of US clos have already breached that you know, 68 00:03:57,520 --> 00:04:00,400 Speaker 4: triple C requirement. So this is something that we're seeing 69 00:04:00,400 --> 00:04:03,640 Speaker 4: across the world. And again kind of goes to the 70 00:04:03,640 --> 00:04:07,520 Speaker 4: fact that this single credit has built up massive amounts 71 00:04:07,520 --> 00:04:12,680 Speaker 4: of debt mainly during the era of easy money and 72 00:04:12,720 --> 00:04:15,800 Speaker 4: thanks to kind of very aggressive acquisitions, and now you know, 73 00:04:15,880 --> 00:04:17,400 Speaker 4: creditors are paying the price of that. 74 00:04:18,440 --> 00:04:21,120 Speaker 1: Is it a big enough event to shut down that market? 75 00:04:21,160 --> 00:04:23,279 Speaker 1: I mean, they're just so much cash chasing every deal 76 00:04:23,320 --> 00:04:24,599 Speaker 1: at the moment. I mean that the yields are so 77 00:04:24,680 --> 00:04:27,400 Speaker 1: high that investors just seem to love credit generally. But 78 00:04:27,560 --> 00:04:30,159 Speaker 1: is this name big enough to cause that kind of 79 00:04:30,800 --> 00:04:31,600 Speaker 1: you know, dislocation. 80 00:04:33,000 --> 00:04:36,520 Speaker 4: I mean, Celos have had a very good start to 81 00:04:36,560 --> 00:04:39,720 Speaker 4: the year. I think you know, something like record issuance 82 00:04:39,800 --> 00:04:41,800 Speaker 4: at least for you know, a number of years, so 83 00:04:41,839 --> 00:04:46,120 Speaker 4: they've had as opposed to last year when issuance was 84 00:04:46,160 --> 00:04:49,719 Speaker 4: in the doldrums, they've had a very strong start now. 85 00:04:50,480 --> 00:04:53,960 Speaker 4: COLO managers and bankers tend to stress the point that 86 00:04:54,120 --> 00:04:57,680 Speaker 4: even if a credit is downgraded into this you know, 87 00:04:57,800 --> 00:05:03,400 Speaker 4: junkiest junk territory, they're not forced sellers. So they might 88 00:05:03,560 --> 00:05:06,440 Speaker 4: choose to you know, hold on to Altis debt and 89 00:05:06,480 --> 00:05:11,320 Speaker 4: maybe until the prices recover and as in, you know, 90 00:05:11,400 --> 00:05:13,760 Speaker 4: kind of stay in breach of that these kind of 91 00:05:13,760 --> 00:05:18,839 Speaker 4: triple C buckets. They might look to sell other CLO collateral. 92 00:05:19,240 --> 00:05:22,720 Speaker 4: But that means that we're seeing the impacts of Altis's 93 00:05:22,760 --> 00:05:26,920 Speaker 4: troubles on other leverage loan issuers in the market. So 94 00:05:27,520 --> 00:05:32,040 Speaker 4: I think when when you know, France was first downgraded 95 00:05:32,040 --> 00:05:35,280 Speaker 4: into triple C, we saw impacts for example on you know, 96 00:05:35,360 --> 00:05:39,440 Speaker 4: the five billion dollar loan from ZAO, would say a 97 00:05:39,600 --> 00:05:44,520 Speaker 4: US issuer, their prices were hit in the secondary loan market. 98 00:05:45,080 --> 00:05:48,480 Speaker 4: So people aren't saying that the CLO market is clogged 99 00:05:48,560 --> 00:05:51,760 Speaker 4: up yet, but it's for sure that a lot of 100 00:05:52,000 --> 00:05:54,880 Speaker 4: managers are going to be impacted by this. I mean 101 00:05:54,920 --> 00:05:59,520 Speaker 4: one CLO manager described alties Front's impact, you know, the 102 00:05:59,600 --> 00:06:02,599 Speaker 4: downgrade as a quote widow maker for some managers in 103 00:06:02,600 --> 00:06:05,039 Speaker 4: the market. We've yet to see that, but you know, 104 00:06:05,520 --> 00:06:06,840 Speaker 4: hold this, hold this. 105 00:06:06,839 --> 00:06:11,080 Speaker 1: Page sounds grim widow maker, So there's definitely some contagion there. 106 00:06:11,480 --> 00:06:13,920 Speaker 1: Let's talk about the drama at the company level, and 107 00:06:13,960 --> 00:06:16,039 Speaker 1: it gave us a flavor of what's going on. There's 108 00:06:16,080 --> 00:06:19,400 Speaker 1: a very colorful billionaire there, and there's all sorts of 109 00:06:19,440 --> 00:06:23,799 Speaker 1: stories about artworks and you know, colorful phrases like Dayton switch, 110 00:06:23,880 --> 00:06:25,440 Speaker 1: bullyboy tactics. What's going on. 111 00:06:26,040 --> 00:06:30,760 Speaker 3: There is a very colorful character controlling the company who's 112 00:06:30,760 --> 00:06:35,320 Speaker 3: built this empire basically with mergers and acquisitions funded with 113 00:06:35,440 --> 00:06:38,680 Speaker 3: debt at a time when dead was very cheap. And 114 00:06:39,480 --> 00:06:43,160 Speaker 3: it's been a while since this kind of structure has 115 00:06:43,200 --> 00:06:46,400 Speaker 3: been a concern. Already, back in two thousand and sixteen 116 00:06:46,480 --> 00:06:51,200 Speaker 3: or seventeen, we already had stories that pointed about Eltis 117 00:06:51,240 --> 00:06:57,880 Speaker 3: having sixty elties the whole empire. Now it's divided in 118 00:06:57,920 --> 00:07:02,159 Speaker 3: three seals after an inter all your organization, it's International, 119 00:07:02,360 --> 00:07:07,400 Speaker 3: it's Front, and it's alts US and overall, the sixty 120 00:07:07,400 --> 00:07:11,080 Speaker 3: billion has been a concern, in particular for the twenty 121 00:07:11,080 --> 00:07:14,880 Speaker 3: four billion that they have in Europe. It's the largest 122 00:07:15,240 --> 00:07:20,200 Speaker 3: junk kissure by far, and then he has been very 123 00:07:21,160 --> 00:07:24,560 Speaker 3: open about this. The fact that I'm so big in 124 00:07:24,600 --> 00:07:27,000 Speaker 3: the credit market is not my problem as much as 125 00:07:27,000 --> 00:07:31,400 Speaker 3: the bank's problem, or in this case, bondholders and other 126 00:07:31,840 --> 00:07:36,960 Speaker 3: investors problem. IF's what's the worst that can happen to me? 127 00:07:37,560 --> 00:07:40,840 Speaker 3: If I can't repay my mortgage? Well, okay, fine, the 128 00:07:40,880 --> 00:07:43,480 Speaker 3: bank will get back the keys of the house. But 129 00:07:43,520 --> 00:07:45,840 Speaker 3: I've enjoyed all these years and I've been happy in 130 00:07:45,920 --> 00:07:52,160 Speaker 3: that has He said that very very openly. So that's 131 00:07:52,360 --> 00:07:56,960 Speaker 3: that's the mood, and that's the playbook now. He what 132 00:07:57,120 --> 00:08:01,360 Speaker 3: was interesting, The timing is interesting and also the approach. 133 00:08:01,840 --> 00:08:06,320 Speaker 3: Let's go back to last year. August last year, there 134 00:08:06,400 --> 00:08:10,560 Speaker 3: were summer last year there were news that Portugal was 135 00:08:10,600 --> 00:08:17,200 Speaker 3: investigating Altis Portugal, which is part of Altis International, and 136 00:08:17,240 --> 00:08:21,360 Speaker 3: in particular they were investigating a few individuals, one of 137 00:08:21,400 --> 00:08:25,640 Speaker 3: them Aarano Pereda is the co founder of Altis, so 138 00:08:25,880 --> 00:08:32,960 Speaker 3: very very close person to Patrick Dry for corruption and 139 00:08:34,720 --> 00:08:41,160 Speaker 3: Patrick Dry whent he appeared on on the company's earnings 140 00:08:41,200 --> 00:08:48,360 Speaker 3: in August to kind of reensure reassured investors that Altis 141 00:08:48,600 --> 00:08:54,680 Speaker 3: was a victim of this corruption case and that well 142 00:08:55,480 --> 00:08:58,040 Speaker 3: he was not aware of this and that he was very, 143 00:08:58,120 --> 00:09:02,960 Speaker 3: very disappointed with the these individuals. Then he went on 144 00:09:03,000 --> 00:09:06,320 Speaker 3: a road show in September in London and New York 145 00:09:06,440 --> 00:09:09,880 Speaker 3: to tell investors that everything and anything in the Altist 146 00:09:09,960 --> 00:09:16,800 Speaker 3: universe globally US, Portugal, Israel, and France and American Republic 147 00:09:16,920 --> 00:09:20,200 Speaker 3: was up for sale at a price, and that he 148 00:09:20,200 --> 00:09:25,959 Speaker 3: would use that to repay that. So the asset sale 149 00:09:26,000 --> 00:09:31,559 Speaker 3: process started and he for for the French silo. They 150 00:09:31,640 --> 00:09:35,160 Speaker 3: agreed on the on the disposals of two assets. So 151 00:09:35,200 --> 00:09:37,760 Speaker 3: the assumption in the market was that they were going 152 00:09:37,760 --> 00:09:41,000 Speaker 3: to use the proceeds to repay that. But then the 153 00:09:41,040 --> 00:09:44,079 Speaker 3: company had a surprise for creditors, which is that right 154 00:09:44,160 --> 00:09:48,560 Speaker 3: before agreeing on the sale, they removed those assets from 155 00:09:48,600 --> 00:09:54,679 Speaker 3: the restricted group and moved it to unrestricted entities, which 156 00:09:55,240 --> 00:09:59,559 Speaker 3: essentially means that it's out of reach of creditors. If 157 00:09:59,559 --> 00:10:02,760 Speaker 3: it ended up in a bankruptcy case, then yes, as 158 00:10:02,800 --> 00:10:07,439 Speaker 3: in an an insolvency procedure, yes, creditors would have records 159 00:10:07,440 --> 00:10:11,480 Speaker 3: against those assets. But what the company can do in 160 00:10:11,520 --> 00:10:15,840 Speaker 3: the meantime if before it ended in that scenario is 161 00:10:15,920 --> 00:10:20,320 Speaker 3: it can raise debt from third party, for instance, against 162 00:10:20,320 --> 00:10:24,360 Speaker 3: those assets, and that collateral would be for the new 163 00:10:24,480 --> 00:10:29,640 Speaker 3: money provider. And so what the company did was in 164 00:10:29,679 --> 00:10:36,160 Speaker 3: the last earnings call in March, they told investors about 165 00:10:36,200 --> 00:10:40,640 Speaker 3: this move and also that they would only consider using 166 00:10:40,679 --> 00:10:46,640 Speaker 3: the proceeds to repay that if creditors participated in discounted transactions. 167 00:10:47,200 --> 00:10:50,160 Speaker 3: Now that of course shifted the mood because everyone was 168 00:10:50,200 --> 00:10:53,559 Speaker 3: expecting a repayment and all of a sudden taking they 169 00:10:53,559 --> 00:10:56,360 Speaker 3: were told like, actually, you know what, you need to 170 00:10:56,400 --> 00:10:59,360 Speaker 3: take a haircut. We don't know how big the haircut, 171 00:10:59,440 --> 00:11:03,840 Speaker 3: we don't know. That's what's the plan. But there he's 172 00:11:04,080 --> 00:11:06,439 Speaker 3: he's created some bad blood, let's put it that way 173 00:11:06,480 --> 00:11:07,439 Speaker 3: with creditors. 174 00:11:07,640 --> 00:11:10,000 Speaker 1: So these the bully boy tactics you've been writing about. 175 00:11:10,800 --> 00:11:13,720 Speaker 3: That's yeah, that's exactly why it does. For a lot 176 00:11:13,760 --> 00:11:15,800 Speaker 3: of people, it does feel like a ransom. 177 00:11:16,040 --> 00:11:18,000 Speaker 1: Why is he doing this? And I mean, obviously you 178 00:11:18,000 --> 00:11:20,840 Speaker 1: say that it's a situation where you know, he owes 179 00:11:20,880 --> 00:11:23,200 Speaker 1: a lot of money, so it's more that the lenders 180 00:11:23,280 --> 00:11:26,080 Speaker 1: problem at this point because there's so much outstanding. But 181 00:11:26,280 --> 00:11:28,240 Speaker 1: doesn't you know, isn't his company one that has to 182 00:11:28,280 --> 00:11:30,480 Speaker 1: come back to the market. Aren't they one that you know, 183 00:11:30,600 --> 00:11:32,440 Speaker 1: they require a lot of capital to run their business. 184 00:11:32,480 --> 00:11:35,400 Speaker 1: So he's kind of burning his bridges with creditors. Isn't 185 00:11:35,400 --> 00:11:37,120 Speaker 1: there a long term negative impact for him? 186 00:11:37,760 --> 00:11:42,160 Speaker 3: Yes, although there are different theories about why he is 187 00:11:42,200 --> 00:11:46,480 Speaker 3: doing it now, and I probably it's not down to 188 00:11:46,520 --> 00:11:48,839 Speaker 3: a single one, but the most likely one is that 189 00:11:49,440 --> 00:11:53,000 Speaker 3: because everyone was expecting to for the company to starty 190 00:11:53,000 --> 00:11:56,640 Speaker 3: peeing dead, the price of the bonds and the loans 191 00:11:56,840 --> 00:12:00,400 Speaker 3: had had increased, so the window for the comp need 192 00:12:00,400 --> 00:12:04,840 Speaker 3: to take advantage of the discounts to do buybacks, for instance, 193 00:12:05,440 --> 00:12:09,120 Speaker 3: was closing. So it did feel like they wanted to 194 00:12:09,160 --> 00:12:11,320 Speaker 3: send the message that no, no, no, Actually, like the 195 00:12:11,360 --> 00:12:15,960 Speaker 3: only way to solve our leverage problem is if we 196 00:12:16,000 --> 00:12:21,400 Speaker 3: do this haircut thing, and they want to cut ten billion, 197 00:12:22,400 --> 00:12:26,720 Speaker 3: which means that they will still have about fourteen billion 198 00:12:26,760 --> 00:12:30,080 Speaker 3: outstanding in the French silo. So yes, they will need 199 00:12:30,120 --> 00:12:32,640 Speaker 3: to come back to the market. But I guess to 200 00:12:32,679 --> 00:12:37,040 Speaker 3: an extent they're betting that creditors will forget in a 201 00:12:37,080 --> 00:12:38,000 Speaker 3: couple of years. 202 00:12:38,240 --> 00:12:41,040 Speaker 1: It's tony possible. So I do want to bring in aiden, 203 00:12:41,080 --> 00:12:43,920 Speaker 1: but before we do that, I'll know what's the kind 204 00:12:43,920 --> 00:12:47,360 Speaker 1: of emotional impact on the market of people furious at 205 00:12:47,360 --> 00:12:48,680 Speaker 1: this billionaire. 206 00:12:50,440 --> 00:12:54,360 Speaker 4: Yeah, I mean people are upset, I guess speaking to 207 00:12:55,240 --> 00:13:00,320 Speaker 4: high bond investors, and that's you know, I'll tease makes 208 00:13:00,400 --> 00:13:03,960 Speaker 4: up a huge amount of the high old bond market too. 209 00:13:04,400 --> 00:13:08,319 Speaker 4: You know, everyone is suffering pain, everyone has exposure. They 210 00:13:08,360 --> 00:13:10,520 Speaker 4: haven't been able to avoid it. You know, they've built 211 00:13:10,640 --> 00:13:14,480 Speaker 4: up exposure to the company over this you know kind 212 00:13:14,480 --> 00:13:18,760 Speaker 4: of era of easy money, when getting a return was 213 00:13:18,800 --> 00:13:22,359 Speaker 4: the priority. I guess they kind of saw what telecoms 214 00:13:22,360 --> 00:13:24,079 Speaker 4: for a long time was like the darling of the 215 00:13:24,120 --> 00:13:29,040 Speaker 4: high old market, and so now they I guess they 216 00:13:29,080 --> 00:13:33,920 Speaker 4: see themselves as having you know, helped Drahi to where 217 00:13:33,960 --> 00:13:36,560 Speaker 4: he's got. He's a he's a billionaire, he lives this, 218 00:13:36,679 --> 00:13:41,440 Speaker 4: you know, kind of fairly, you know, lavish lifestyle, and 219 00:13:41,920 --> 00:13:45,120 Speaker 4: now he's turning to the secured and they see him 220 00:13:45,120 --> 00:13:47,200 Speaker 4: as you know, having turned to the secured creditors who 221 00:13:47,240 --> 00:13:49,640 Speaker 4: have got him there saying actually, you guys are going 222 00:13:49,720 --> 00:13:51,880 Speaker 4: to have to take the pain. So there's there's a 223 00:13:51,920 --> 00:13:55,760 Speaker 4: lot of there's a lot of bad feeling in the market, 224 00:13:55,960 --> 00:13:59,160 Speaker 4: and they say, you know, there's a number of these 225 00:13:59,360 --> 00:14:03,400 Speaker 4: companies are headed up by I guess similar figures to Drahi, 226 00:14:04,400 --> 00:14:07,320 Speaker 4: maybe like the call sens of this world in the 227 00:14:07,360 --> 00:14:10,200 Speaker 4: case of you know, the ardor chairman that are pulling 228 00:14:10,240 --> 00:14:13,079 Speaker 4: similar tricks, and they're saying, you know, Altisse France was 229 00:14:13,120 --> 00:14:16,360 Speaker 4: the last straw. We're not going to support these kind 230 00:14:16,440 --> 00:14:20,520 Speaker 4: of companies anymore. And you know, as Ernie says, maybe 231 00:14:20,880 --> 00:14:24,080 Speaker 4: in a couple of years time, they'll eat their words 232 00:14:24,200 --> 00:14:26,800 Speaker 4: or you know, kind of least. Memories are sometimes short 233 00:14:26,840 --> 00:14:30,000 Speaker 4: in this market. But for now that they're upset. 234 00:14:31,000 --> 00:14:33,960 Speaker 1: Let's talk to Aidan Cheslin at Bloomberg Intelligence. You look 235 00:14:33,960 --> 00:14:37,080 Speaker 1: at this stuff in great detail. You have described Alts 236 00:14:37,240 --> 00:14:41,560 Speaker 1: as teetering like a Jenga tower. So what's the situation 237 00:14:41,640 --> 00:14:43,360 Speaker 1: and aiden how do you view things? 238 00:14:44,280 --> 00:14:48,640 Speaker 2: Yeah, I I think you know, clearly the company themselves 239 00:14:48,720 --> 00:14:54,640 Speaker 2: have said that the current debt structure is not sustainable 240 00:14:54,800 --> 00:14:58,640 Speaker 2: going forward. You could certainly argue they've made that worse 241 00:14:58,720 --> 00:15:01,440 Speaker 2: by taking assets out of structure. Not just now, by 242 00:15:01,480 --> 00:15:05,680 Speaker 2: the way, but that behavior dates back to twenty twenty 243 00:15:05,720 --> 00:15:09,160 Speaker 2: one when they sold their tower business. Hevery and yank 244 00:15:09,240 --> 00:15:13,000 Speaker 2: those proceeds out of the company rather than reducing debt. 245 00:15:14,920 --> 00:15:17,360 Speaker 2: You know, you have leverage of six point four times 246 00:15:17,800 --> 00:15:20,680 Speaker 2: at the end of last year. The company is guiding 247 00:15:20,800 --> 00:15:23,320 Speaker 2: that ebit DA will be down mid to high single 248 00:15:23,360 --> 00:15:28,160 Speaker 2: digits this year. They're also interest costs because of where 249 00:15:28,200 --> 00:15:30,240 Speaker 2: we are in the credit cycle, interest costs are going 250 00:15:30,320 --> 00:15:32,840 Speaker 2: up fast than they're able to cut the capex, which 251 00:15:32,920 --> 00:15:36,360 Speaker 2: means they'll be free cashtro negative this year. So you know, 252 00:15:36,440 --> 00:15:38,520 Speaker 2: we have on our numbers leverage going from six point 253 00:15:38,520 --> 00:15:40,760 Speaker 2: four to seven times this year and seven point seven 254 00:15:40,960 --> 00:15:48,640 Speaker 2: the next year. Recent transactions where we've seen European telecoms 255 00:15:48,640 --> 00:15:53,040 Speaker 2: companies being traded or bought and sold, they've been going 256 00:15:53,040 --> 00:15:55,800 Speaker 2: for EVY to ebit DAR multiples of close to five 257 00:15:55,920 --> 00:15:59,320 Speaker 2: five and a quarter times. So clearly, this kind of 258 00:15:59,480 --> 00:16:01,720 Speaker 2: level of debt we have now there's no equity value 259 00:16:01,760 --> 00:16:04,800 Speaker 2: in the business is probably you know, if it was 260 00:16:04,840 --> 00:16:07,920 Speaker 2: to go into into a hard restructuring, you'd probably wipe 261 00:16:07,920 --> 00:16:11,640 Speaker 2: out the subordinated debt as well, and the and the 262 00:16:11,720 --> 00:16:15,120 Speaker 2: leverage is spiraling. So please, something needs to be done. 263 00:16:16,560 --> 00:16:18,440 Speaker 2: And I think that's that's the crux of what the 264 00:16:18,520 --> 00:16:21,360 Speaker 2: company was trying to get at on the call. It's 265 00:16:21,400 --> 00:16:23,600 Speaker 2: just a question of how much gets done and who 266 00:16:23,640 --> 00:16:24,520 Speaker 2: takes the pain. 267 00:16:25,040 --> 00:16:27,760 Speaker 1: And selling the assets. We've talked about that on this show. 268 00:16:28,280 --> 00:16:30,280 Speaker 1: Are they kind of getting rid of the crown duels. 269 00:16:30,280 --> 00:16:33,520 Speaker 1: Are they undermining the value by by selling the assets the. 270 00:16:33,440 --> 00:16:36,680 Speaker 2: Businesses that have been stripped from the group so far 271 00:16:36,800 --> 00:16:40,200 Speaker 2: a kind of non core. I think the problem is 272 00:16:40,280 --> 00:16:44,120 Speaker 2: fundamentally that the leverage of the core s FR business 273 00:16:45,520 --> 00:16:49,160 Speaker 2: is just way too high relative to to the value 274 00:16:49,160 --> 00:16:54,160 Speaker 2: of the company. And that's that's what's kind of hurting them, 275 00:16:54,440 --> 00:16:57,080 Speaker 2: and it's part of what will form the negotiations between 276 00:16:58,360 --> 00:17:04,119 Speaker 2: the creditors and the the shareholder, because obviously, if the 277 00:17:04,160 --> 00:17:06,879 Speaker 2: company is worth around five to five and a quarter 278 00:17:06,960 --> 00:17:10,320 Speaker 2: times ebit DAR, if you can cut the leverage down 279 00:17:10,359 --> 00:17:13,320 Speaker 2: to four times or below, which is where Artista saying 280 00:17:13,320 --> 00:17:16,119 Speaker 2: they'd like it cut down to through debt haircuts, you 281 00:17:16,200 --> 00:17:20,399 Speaker 2: are recreating equity value to the shareholder when none exists 282 00:17:20,400 --> 00:17:24,040 Speaker 2: today as well. So that's that's one part of the discussions. 283 00:17:24,080 --> 00:17:29,040 Speaker 2: How much will creditors want to give into the to 284 00:17:29,119 --> 00:17:33,600 Speaker 2: the shareholder and create value there versus preserving value for themselves. 285 00:17:34,280 --> 00:17:36,560 Speaker 1: And what about all the shenanigans with moving the debt around? 286 00:17:36,600 --> 00:17:38,880 Speaker 1: I mean, is this something that investors should have known 287 00:17:38,920 --> 00:17:40,720 Speaker 1: about because it was in the bond docks or the 288 00:17:40,720 --> 00:17:43,040 Speaker 1: covenants and they you know, they were warned, but they 289 00:17:43,080 --> 00:17:46,040 Speaker 1: just didn't take any notice, and now it's coming home 290 00:17:46,080 --> 00:17:46,480 Speaker 1: to roost. 291 00:17:46,880 --> 00:17:49,720 Speaker 2: Yeah, I think it's a symptom of weakening and documentation 292 00:17:49,800 --> 00:17:52,760 Speaker 2: that we've seen as a process over the last decade 293 00:17:52,880 --> 00:17:58,240 Speaker 2: or more. Companies as clearly entitled to do this. It 294 00:17:58,320 --> 00:18:03,160 Speaker 2: is clearly aggressive, but you know, the limitations were there 295 00:18:03,160 --> 00:18:07,920 Speaker 2: in the documentation. And we're seeing a deal this week 296 00:18:08,000 --> 00:18:12,320 Speaker 2: with Telecommentalia where they're offering their bondholders the chance to 297 00:18:12,359 --> 00:18:16,440 Speaker 2: move into the network business, which is essentially being bought 298 00:18:16,480 --> 00:18:19,480 Speaker 2: out and lbo' by KKR at the starting leverage of 299 00:18:19,520 --> 00:18:21,600 Speaker 2: four point three times, but we think going up to 300 00:18:21,680 --> 00:18:25,440 Speaker 2: over five times, and they're being offered a security package 301 00:18:25,520 --> 00:18:29,280 Speaker 2: but otherwise basically the same terms of the largely investment 302 00:18:29,280 --> 00:18:33,480 Speaker 2: grade style documents they had before. And many investors probably 303 00:18:33,520 --> 00:18:36,879 Speaker 2: will do that switch into the tower company because in 304 00:18:36,920 --> 00:18:39,600 Speaker 2: the long term it's probably a more stable asset, But 305 00:18:40,240 --> 00:18:42,320 Speaker 2: they're going to be sitting in a company over five 306 00:18:42,359 --> 00:18:45,800 Speaker 2: times levered, run by KKR with investment grade style documents, 307 00:18:45,880 --> 00:18:50,680 Speaker 2: and that's been the way of the market for quite 308 00:18:50,680 --> 00:18:51,360 Speaker 2: some time now. 309 00:18:51,920 --> 00:18:54,600 Speaker 1: And let's say they do come out at the other 310 00:18:54,680 --> 00:18:57,639 Speaker 1: side of this, you know, they do put some losses 311 00:18:57,680 --> 00:19:01,040 Speaker 1: on creditors, but they they come out at the other 312 00:19:01,119 --> 00:19:02,760 Speaker 1: end and then they have to come back to the market. 313 00:19:02,800 --> 00:19:05,119 Speaker 1: Do you expect there to be any premium on, you know, 314 00:19:05,240 --> 00:19:07,720 Speaker 1: or any you know, having to pay a bit more 315 00:19:07,760 --> 00:19:09,600 Speaker 1: to access the market after that, or is it just 316 00:19:09,640 --> 00:19:12,080 Speaker 1: such such a big name that investors will forget. 317 00:19:12,720 --> 00:19:16,439 Speaker 2: I think investors will remember this one in particular for 318 00:19:16,520 --> 00:19:20,680 Speaker 2: some time. Don't forget through the other silos, whether it's 319 00:19:20,680 --> 00:19:25,760 Speaker 2: Alti's international for example, They basically put, with a very 320 00:19:25,760 --> 00:19:29,159 Speaker 2: few exceptions, the entire company up for sale. So I 321 00:19:29,160 --> 00:19:31,160 Speaker 2: think the plan is to try and extract as much 322 00:19:31,240 --> 00:19:35,800 Speaker 2: value as they can and kind of carry on selling 323 00:19:35,840 --> 00:19:38,200 Speaker 2: assets and taking the value that they can out and 324 00:19:38,520 --> 00:19:44,639 Speaker 2: repaying debt elsewhere. So probably if you if you, you know, 325 00:19:44,800 --> 00:19:47,840 Speaker 2: take a straight line extrapolation of that, and they're probably 326 00:19:47,880 --> 00:19:50,719 Speaker 2: hoping that once this debt haircut is done, they wouldn't 327 00:19:50,760 --> 00:19:54,520 Speaker 2: necessarily need to issue a substantial amount in the next 328 00:19:54,560 --> 00:19:55,719 Speaker 2: two to three years. 329 00:19:56,440 --> 00:19:59,320 Speaker 1: So these aggressive debt management move they've been seen before 330 00:19:59,359 --> 00:20:02,080 Speaker 1: in the US, for sample J Crew, but fairly new 331 00:20:02,440 --> 00:20:06,399 Speaker 1: in Europe at this point. Creditors are organizing, right it 332 00:20:06,440 --> 00:20:08,720 Speaker 1: only just like they do in the US. How does 333 00:20:08,760 --> 00:20:10,760 Speaker 1: that work? What's the next stage? What are we looking for? 334 00:20:11,240 --> 00:20:14,280 Speaker 3: So what they've done so far? There are two in 335 00:20:14,600 --> 00:20:17,119 Speaker 3: the case of all these trands that are too credator groups. 336 00:20:17,240 --> 00:20:23,919 Speaker 3: One is a group of crosshold of investors that have 337 00:20:23,960 --> 00:20:28,880 Speaker 3: crossholdings in the unsecured bonds and the secure bonds that 338 00:20:28,880 --> 00:20:32,840 Speaker 3: that one has about four billion of alt is dead. 339 00:20:33,320 --> 00:20:37,200 Speaker 3: And then there's a bigger group of secured lenders and 340 00:20:37,640 --> 00:20:44,720 Speaker 3: bond holders that these ones have signed a cooperation agreement 341 00:20:45,080 --> 00:20:49,600 Speaker 3: so called that basically what is we're going to stick 342 00:20:49,640 --> 00:20:52,840 Speaker 3: together so that the company can't play tricks and can't 343 00:20:54,400 --> 00:20:58,920 Speaker 3: try to to split us and play us against each other. 344 00:21:00,400 --> 00:21:03,159 Speaker 3: What is interesting, which is again for Europe, is very 345 00:21:03,240 --> 00:21:07,639 Speaker 3: unusual because it's often seen as uncompetitive, so it's a 346 00:21:07,640 --> 00:21:11,240 Speaker 3: bit of a gray area depending on what they're used for. 347 00:21:12,600 --> 00:21:14,280 Speaker 3: The thing here is that we have no idea what 348 00:21:14,359 --> 00:21:16,520 Speaker 3: the company wants to do. We don't know what they 349 00:21:16,520 --> 00:21:20,560 Speaker 3: will come up with. So they know that they want 350 00:21:20,600 --> 00:21:24,600 Speaker 3: to band together and push against any potential abuse, which 351 00:21:24,640 --> 00:21:27,159 Speaker 3: is don't know what the abuse is going to look like. 352 00:21:28,040 --> 00:21:31,199 Speaker 3: And then the interesting thing about this one is that 353 00:21:31,280 --> 00:21:35,640 Speaker 3: it's six months, which is way longer than they usually 354 00:21:35,960 --> 00:21:39,080 Speaker 3: are because typically it's like ninety day agreement and then 355 00:21:39,080 --> 00:21:42,800 Speaker 3: they get renewed. This one is for six months, which 356 00:21:42,880 --> 00:21:45,919 Speaker 3: you can extend twice for sixty days. 357 00:21:46,480 --> 00:21:48,879 Speaker 1: So do you expect them to be successful in any way? 358 00:21:48,880 --> 00:21:51,400 Speaker 1: I mean, is there any sign that this might work? 359 00:21:51,440 --> 00:21:53,200 Speaker 1: You know, the credits can band together and they can 360 00:21:53,240 --> 00:21:54,280 Speaker 1: defend themselves. 361 00:21:54,880 --> 00:21:59,159 Speaker 3: There have been instances before, like Dish in the US, 362 00:21:59,240 --> 00:22:05,240 Speaker 3: where creditors pushing bag was a successful move. The thing 363 00:22:05,320 --> 00:22:08,320 Speaker 3: is that this one is also a very very big group, 364 00:22:08,560 --> 00:22:13,359 Speaker 3: so it's also TVD if they will manage to stick 365 00:22:13,400 --> 00:22:14,920 Speaker 3: together given the size of the group. 366 00:22:15,800 --> 00:22:18,120 Speaker 1: So just going back to the impact more broadly, I mean, 367 00:22:18,240 --> 00:22:21,600 Speaker 1: elen'tor mentioned it and aid and I just wanted to 368 00:22:21,600 --> 00:22:26,320 Speaker 1: get your take on the kind of ripple effect through telecoms, 369 00:22:26,359 --> 00:22:29,520 Speaker 1: you know, through other sectors or is it really just 370 00:22:29,520 --> 00:22:32,520 Speaker 1: a standalone Altias story that people just putting this in 371 00:22:32,520 --> 00:22:33,480 Speaker 1: an Oltis box. 372 00:22:34,600 --> 00:22:37,760 Speaker 2: Now we've seen obviously things like the situation with Arda 373 00:22:37,840 --> 00:22:40,639 Speaker 2: at the moment as well. There's a few of these 374 00:22:40,720 --> 00:22:42,879 Speaker 2: kind of restructurings going on at the moment, and I 375 00:22:42,920 --> 00:22:48,160 Speaker 2: think there's been I think you mentioned it earlier. Ins 376 00:22:48,200 --> 00:22:52,000 Speaker 2: of the weakness of the documentation and the availability to 377 00:22:52,040 --> 00:22:56,879 Speaker 2: move assets around has been part of the problem for creditors. 378 00:22:57,520 --> 00:23:00,719 Speaker 2: You also have in several of these situationstions in Outis 379 00:23:00,720 --> 00:23:04,920 Speaker 2: France is one of them, even have competing interests between 380 00:23:05,119 --> 00:23:10,040 Speaker 2: different creditor groups. So within out Ease France, there's obviously 381 00:23:10,200 --> 00:23:13,160 Speaker 2: some creditors that are solely in the senior secure debt 382 00:23:13,200 --> 00:23:15,960 Speaker 2: and there are some that are in the subordinated debt 383 00:23:16,240 --> 00:23:19,280 Speaker 2: as well. And if you're trying to preserve value in 384 00:23:19,800 --> 00:23:21,720 Speaker 2: one area, it means you have to give up more 385 00:23:21,800 --> 00:23:25,920 Speaker 2: value in another area, and you end up having some 386 00:23:26,000 --> 00:23:30,560 Speaker 2: creditor on creditor violence as well, and certainly see you 387 00:23:31,480 --> 00:23:34,480 Speaker 2: there's instances where that can happen. You know, every each 388 00:23:34,520 --> 00:23:40,159 Speaker 2: of these restructurings have their own unique circumstances at the 389 00:23:40,200 --> 00:23:44,000 Speaker 2: root cause of it, although, has been a combination of 390 00:23:44,760 --> 00:23:50,760 Speaker 2: higher interest rates, weak financial performance, poor documentation. 391 00:23:51,880 --> 00:23:54,080 Speaker 1: We talked to a big investor in Europe not that 392 00:23:54,160 --> 00:23:56,159 Speaker 1: long ago, a couple of episodes ago about you know, 393 00:23:56,200 --> 00:23:58,959 Speaker 1: the risks to credit markets. We always bring those up, 394 00:23:59,359 --> 00:24:02,840 Speaker 1: and it's she said her biggest concern she's based in 395 00:24:02,880 --> 00:24:06,639 Speaker 1: Europe was the spread of credits or on credit of 396 00:24:06,720 --> 00:24:10,960 Speaker 1: violence from the US to Europe. As you just mentioned, 397 00:24:11,040 --> 00:24:13,120 Speaker 1: aiden this is kind of like, you know, the beginning 398 00:24:13,119 --> 00:24:16,760 Speaker 1: of it potentially. I don't know. Do you think this 399 00:24:16,920 --> 00:24:19,680 Speaker 1: marks the beginning of the spread of this to Europe. 400 00:24:20,600 --> 00:24:25,199 Speaker 3: Well, we certainly are seeing it in capital structures where 401 00:24:25,440 --> 00:24:29,679 Speaker 3: there is a big US component, as in there are 402 00:24:29,680 --> 00:24:33,240 Speaker 3: a lot of US investors and advisors that are used 403 00:24:33,240 --> 00:24:37,240 Speaker 3: to do these tactics. I don't know if when we 404 00:24:38,200 --> 00:24:40,280 Speaker 3: It's true that one of the issues about doing it 405 00:24:40,320 --> 00:24:41,960 Speaker 3: in Europe is that you never wanted to be the 406 00:24:42,000 --> 00:24:45,119 Speaker 3: first one to try. You wanted someone to try and 407 00:24:45,200 --> 00:24:49,200 Speaker 3: fail first, and then if it didn't fail, then you 408 00:24:49,200 --> 00:24:54,600 Speaker 3: would think about it. We'll see. Another reason why in 409 00:24:54,640 --> 00:24:58,960 Speaker 3: Europe it doesn't tend to work is because the market 410 00:24:59,040 --> 00:25:02,160 Speaker 3: is smaller. That's if that's that's a theory. The market 411 00:25:02,200 --> 00:25:04,960 Speaker 3: is smaller and people tend to be where investors tend 412 00:25:04,960 --> 00:25:08,280 Speaker 3: to be nicer to each other because they see each 413 00:25:08,280 --> 00:25:11,440 Speaker 3: other more often, perhaps than in the US. I don't 414 00:25:11,480 --> 00:25:16,239 Speaker 3: know if that's that true, but we'll we'll see if 415 00:25:16,280 --> 00:25:20,119 Speaker 3: that's really the beginning of a more aggressive trend in 416 00:25:20,160 --> 00:25:23,240 Speaker 3: Europe or if it's used an exception for like huge 417 00:25:23,400 --> 00:25:28,199 Speaker 3: capital structures where this is just like more more prone 418 00:25:28,400 --> 00:25:28,959 Speaker 3: to happen. 419 00:25:29,600 --> 00:25:32,000 Speaker 1: You'll probably find out, Irony, you're you're here in New 420 00:25:32,080 --> 00:25:34,280 Speaker 1: York for three months, usually based on your you'll find 421 00:25:34,280 --> 00:25:37,240 Speaker 1: out whether people here are more aggressive than they are 422 00:25:37,240 --> 00:25:38,920 Speaker 1: in Europe. What do you think? Do you think that's 423 00:25:39,040 --> 00:25:41,919 Speaker 1: reasonable sumption that the market there is a is a 424 00:25:42,160 --> 00:25:43,080 Speaker 1: is a kind of one. 425 00:25:44,320 --> 00:25:47,520 Speaker 4: Yeah. I would just echo what Ironie said, which is 426 00:25:47,560 --> 00:25:52,480 Speaker 4: that I mean there's some fear among investors that you know, 427 00:25:52,560 --> 00:25:55,680 Speaker 4: some of these kind of more aggressive US style tactics 428 00:25:55,680 --> 00:25:59,920 Speaker 4: are coming over here. But you know, the CLO market 429 00:26:00,040 --> 00:26:04,400 Speaker 4: in particular is very small. Everyone knows each other. I mean, 430 00:26:04,440 --> 00:26:06,480 Speaker 4: we'll see, right, And. 431 00:26:06,400 --> 00:26:09,600 Speaker 1: So as as Aiden said that there may be others 432 00:26:09,640 --> 00:26:13,000 Speaker 1: in the same boat, are there any other situations out 433 00:26:13,000 --> 00:26:14,600 Speaker 1: there that we think are going to go the same way? 434 00:26:15,760 --> 00:26:23,840 Speaker 3: In Europe there's introm that could potentially clay or try 435 00:26:23,880 --> 00:26:26,879 Speaker 3: to play creators against each other. It's still early days 436 00:26:26,920 --> 00:26:29,240 Speaker 3: and there's no plan on the table yet, but in 437 00:26:29,280 --> 00:26:32,720 Speaker 3: that case there is. There are two groups as well, 438 00:26:32,880 --> 00:26:37,320 Speaker 3: and they have different interests depending on the maturities of 439 00:26:37,400 --> 00:26:40,200 Speaker 3: the dead that they hold. If the company will use 440 00:26:40,240 --> 00:26:45,360 Speaker 3: it to try to extract as much value as possible. 441 00:26:45,400 --> 00:26:49,680 Speaker 1: Will we'll see longer term. Does this kind of put 442 00:26:49,680 --> 00:26:53,200 Speaker 1: pressure on covenants or on documentation or do you think 443 00:26:53,240 --> 00:26:56,320 Speaker 1: people just kind of will will move on. 444 00:26:57,720 --> 00:27:01,720 Speaker 4: I mean, something that I heard yesterday from some of 445 00:27:01,760 --> 00:27:06,400 Speaker 4: the banks was that at least a few banks are 446 00:27:06,400 --> 00:27:12,000 Speaker 4: being a bit more cautious around underwriting new LBOs after 447 00:27:12,240 --> 00:27:14,879 Speaker 4: you know, kind of what they're seeing in terms of 448 00:27:14,920 --> 00:27:18,880 Speaker 4: what's going on with alties fronts, so not necessarily on leverage, 449 00:27:18,960 --> 00:27:21,960 Speaker 4: but they're being kind of much more cognizant about keeping 450 00:27:22,600 --> 00:27:27,159 Speaker 4: investor protections intact, so you know, maybe in some cases 451 00:27:27,560 --> 00:27:31,240 Speaker 4: stepping back from deals where sponsors are being too aggressive 452 00:27:32,560 --> 00:27:36,600 Speaker 4: on some of the baskets, so especially around dividend distribution 453 00:27:36,880 --> 00:27:41,320 Speaker 4: baskets and you know, company's ability to sell assets without 454 00:27:41,359 --> 00:27:45,800 Speaker 4: paying down debt. So I thought that was kind of 455 00:27:45,840 --> 00:27:48,960 Speaker 4: interesting that this is, you know, spiraling out in some 456 00:27:49,040 --> 00:27:53,160 Speaker 4: senses to the way people are looking at new leverage buyouts. 457 00:27:54,119 --> 00:27:55,640 Speaker 3: I think at the end of the day, it will 458 00:27:55,640 --> 00:27:59,800 Speaker 3: depend on offer and demand, because this could be an issue. 459 00:28:00,040 --> 00:28:04,000 Speaker 3: It was something known and investors bought it anyways because 460 00:28:05,040 --> 00:28:07,560 Speaker 3: the demand was so strong, they didn't really have the 461 00:28:07,600 --> 00:28:13,359 Speaker 3: negotiating power to push back when they do, like we 462 00:28:13,600 --> 00:28:15,320 Speaker 3: do see it in the market that when they do, 463 00:28:15,359 --> 00:28:17,760 Speaker 3: they do push back and they get better terms. But 464 00:28:18,240 --> 00:28:23,439 Speaker 3: in general, I wouldn't be surprised if in the next 465 00:28:24,160 --> 00:28:29,200 Speaker 3: months or next year we start seeing loose documentation again 466 00:28:29,400 --> 00:28:33,040 Speaker 3: just because of a matter of for and demand. 467 00:28:33,800 --> 00:28:36,080 Speaker 1: It sounds to me, based on what you're all saying, 468 00:28:36,080 --> 00:28:38,120 Speaker 1: is Altias kind of has the upper hand here. Is 469 00:28:38,160 --> 00:28:40,800 Speaker 1: that fair to an. 470 00:28:40,720 --> 00:28:44,800 Speaker 3: Extent, yes, although I was having this discussion with some 471 00:28:44,920 --> 00:28:48,840 Speaker 3: investors and the idea seems to be also that he 472 00:28:49,080 --> 00:28:53,840 Speaker 3: kind of needs to be not too bad with at 473 00:28:53,920 --> 00:28:56,800 Speaker 3: least part of his investor is because they're also involved 474 00:28:56,840 --> 00:29:02,840 Speaker 3: in alts Us, so he kind of he can be mean, 475 00:29:02,920 --> 00:29:05,520 Speaker 3: but just to an extent, I guess. 476 00:29:06,000 --> 00:29:08,440 Speaker 2: I think this series that he has the upper hand 477 00:29:08,560 --> 00:29:12,000 Speaker 2: comes to the point that he's holding the media and 478 00:29:12,040 --> 00:29:18,280 Speaker 2: then Data Center proceeds as a sort of a carrot 479 00:29:18,360 --> 00:29:22,400 Speaker 2: for investors to agree to this haircut, and it makes 480 00:29:22,400 --> 00:29:25,640 Speaker 2: a big difference to the size of the haircut that 481 00:29:26,200 --> 00:29:30,200 Speaker 2: you need to take. You know, we ran some scenarios 482 00:29:30,240 --> 00:29:32,960 Speaker 2: in our research. We looked at, well, what's the worst 483 00:29:33,000 --> 00:29:37,120 Speaker 2: case scenario if they want to get leverage below four times, 484 00:29:37,560 --> 00:29:42,160 Speaker 2: and those proceeds from those disposals are not recontributed, then 485 00:29:42,200 --> 00:29:45,000 Speaker 2: you'd be looking at a subordinated debt haircut of around 486 00:29:45,000 --> 00:29:47,840 Speaker 2: seventy percent and a senior debt haircut of around forty. 487 00:29:48,840 --> 00:29:51,000 Speaker 2: Now bear in mind, if you're a senior debt holder, 488 00:29:51,000 --> 00:29:53,760 Speaker 2: recovery values probably around eighty percent at the moment if 489 00:29:53,760 --> 00:29:57,160 Speaker 2: you wiped out the equity and subs, so that would 490 00:29:57,160 --> 00:29:59,640 Speaker 2: be a bitter pill for probably too bitter a pill 491 00:29:59,680 --> 00:30:04,000 Speaker 2: maybe the senior debt holders to swallow. If you put 492 00:30:04,720 --> 00:30:07,760 Speaker 2: those disposal proceeds back into the group, then the senior 493 00:30:08,520 --> 00:30:12,280 Speaker 2: debt haircut is nearer to twenty five percent. And if 494 00:30:12,280 --> 00:30:14,400 Speaker 2: you said, actually four and a half times leverage is 495 00:30:14,440 --> 00:30:17,320 Speaker 2: okay instead of four times as well, you're getting down 496 00:30:17,320 --> 00:30:20,960 Speaker 2: to fifteen to twenty percent, which is, you know, where 497 00:30:21,000 --> 00:30:24,240 Speaker 2: the bonds are kind of already pricing in, so that 498 00:30:24,320 --> 00:30:26,400 Speaker 2: might not be seen as quite such a bit of 499 00:30:26,440 --> 00:30:30,240 Speaker 2: pill by the senior debt holders. So I think that's 500 00:30:30,280 --> 00:30:33,120 Speaker 2: why people are saying that you know, he's holding a 501 00:30:33,120 --> 00:30:37,520 Speaker 2: lot of the cards because he can decide what to 502 00:30:37,560 --> 00:30:40,280 Speaker 2: do with those those proceeds, and that will have a 503 00:30:40,320 --> 00:30:46,719 Speaker 2: big influence on the negotiation. Bondholders do have some cards 504 00:30:46,720 --> 00:30:49,520 Speaker 2: of their own to play, particularly the senior holders. I 505 00:30:49,560 --> 00:30:53,959 Speaker 2: don't think the subordinated debt holders have a huge amount 506 00:30:53,960 --> 00:30:58,720 Speaker 2: of leverage, but the senior debt holders have maybe two 507 00:30:58,760 --> 00:31:01,240 Speaker 2: things in their favor. One is the fact that if 508 00:31:01,240 --> 00:31:03,960 Speaker 2: this went into a full restructuring, their recovery value is 509 00:31:04,000 --> 00:31:07,960 Speaker 2: probably eighty percent or better. And the second one is 510 00:31:08,000 --> 00:31:10,800 Speaker 2: that there is a maturity clock that's ticking that could 511 00:31:10,840 --> 00:31:13,280 Speaker 2: potentially get you there in twenty twenty five if there 512 00:31:13,320 --> 00:31:14,080 Speaker 2: was no agreement. 513 00:31:15,000 --> 00:31:17,400 Speaker 1: And really, why does the US side of the matter. 514 00:31:18,080 --> 00:31:22,360 Speaker 3: They will have to negotiate refinancing there as well at 515 00:31:22,400 --> 00:31:25,080 Speaker 3: some point, not that it's urgent in any case, but 516 00:31:25,320 --> 00:31:27,240 Speaker 3: there is part of the investor who is that it's 517 00:31:27,320 --> 00:31:30,520 Speaker 3: involved in Artist France is involved in Altis US as well. 518 00:31:30,640 --> 00:31:32,760 Speaker 1: Okay, And when you talk to the company, what do 519 00:31:32,800 --> 00:31:34,480 Speaker 1: they say, How do they defend themselves? 520 00:31:35,440 --> 00:31:38,000 Speaker 3: I don't think they feel like they need to defend themselves. 521 00:31:38,040 --> 00:31:41,160 Speaker 3: And what was interesting was what I was mentioning earlier 522 00:31:41,440 --> 00:31:43,640 Speaker 3: about Drying the calls is that he was in the 523 00:31:43,640 --> 00:31:47,720 Speaker 3: calls last year to explain that Altis was a victim 524 00:31:47,760 --> 00:31:50,200 Speaker 3: of the fraud, but he didn't show up in the 525 00:31:50,240 --> 00:31:53,479 Speaker 3: calls where investors were at all about the haircut, so 526 00:31:54,200 --> 00:31:59,080 Speaker 3: that I found was an interesting move from him. But 527 00:31:59,160 --> 00:32:02,120 Speaker 3: now the company is like, we we need to cut 528 00:32:02,200 --> 00:32:05,320 Speaker 3: leverage and this is how we plan to do it. 529 00:32:05,920 --> 00:32:08,280 Speaker 1: But when you talk about bait and switch, bully boy tactics, 530 00:32:08,440 --> 00:32:10,560 Speaker 1: Genger towers, I mean, what do they say. 531 00:32:11,880 --> 00:32:16,640 Speaker 3: They don't seem to disagree. They don't push back at 532 00:32:16,680 --> 00:32:17,240 Speaker 3: the very least. 533 00:32:17,400 --> 00:32:19,480 Speaker 1: Okay, So I'll ask all of you just to wrap 534 00:32:19,560 --> 00:32:21,520 Speaker 1: things like what's the next thing to watch for here 535 00:32:21,960 --> 00:32:26,200 Speaker 1: and why? Probably starting with aiden, you know, final thoughts. 536 00:32:26,680 --> 00:32:30,960 Speaker 2: Yeah, I think it's the negotiations between the company and 537 00:32:31,000 --> 00:32:35,360 Speaker 2: the various creditor groups. You know, I ran through the 538 00:32:35,400 --> 00:32:39,920 Speaker 2: debt haircut scenarios already. We said in our note that 539 00:32:40,680 --> 00:32:46,160 Speaker 2: it feels like that there is, you know, some room 540 00:32:46,280 --> 00:32:50,440 Speaker 2: for compromise, given that that you have those proceeds out there, 541 00:32:50,480 --> 00:32:54,520 Speaker 2: given that recovery values in the senior dad are probably 542 00:32:54,560 --> 00:32:59,120 Speaker 2: that better than those implied by what would happen if 543 00:32:59,160 --> 00:33:00,960 Speaker 2: if you were to try and force leverage all the 544 00:33:01,000 --> 00:33:03,360 Speaker 2: way down to where the company wants it. So I 545 00:33:03,360 --> 00:33:06,040 Speaker 2: think you need to let those those investor groups forms 546 00:33:06,080 --> 00:33:09,640 Speaker 2: and those negotiations to start between the company to see 547 00:33:09,640 --> 00:33:11,680 Speaker 2: if they can reach a compromise somewhere in the middle. 548 00:33:12,720 --> 00:33:14,320 Speaker 1: Is there a calendar for that or a trigger or 549 00:33:14,400 --> 00:33:16,440 Speaker 1: some kind of date that we're looking for particularly or 550 00:33:16,480 --> 00:33:17,320 Speaker 1: is it fluid? 551 00:33:18,480 --> 00:33:20,800 Speaker 2: I think that's still relatively fluid. Obviously, you have the 552 00:33:20,840 --> 00:33:23,840 Speaker 2: deadlines on that were mentioned before and some of the 553 00:33:23,880 --> 00:33:26,720 Speaker 2: creditor agreements. But I think it will take some time. 554 00:33:28,400 --> 00:33:31,000 Speaker 2: You know, the maturity cliff is more in twenty twenty 555 00:33:31,040 --> 00:33:33,840 Speaker 2: five rather than this year, so there's time for those 556 00:33:33,880 --> 00:33:35,040 Speaker 2: negotiations to happen. 557 00:33:35,840 --> 00:33:39,600 Speaker 3: Yeah, they have two once maturing January in February. I 558 00:33:39,640 --> 00:33:43,800 Speaker 3: think it is next year. But the interesting thing is 559 00:33:43,840 --> 00:33:47,800 Speaker 3: that everyone is expecting this to take some time. 560 00:33:48,640 --> 00:33:51,120 Speaker 1: Okay, so get some popcorns, settle back. But is there 561 00:33:51,160 --> 00:33:54,200 Speaker 1: anything on your short term radar at any that you're 562 00:33:54,240 --> 00:33:54,760 Speaker 1: looking at. 563 00:33:56,200 --> 00:34:00,000 Speaker 3: Well as at sales, what's happening with the sfar in particular, 564 00:34:00,160 --> 00:34:03,080 Speaker 3: or It's interesting because in that one they were looking 565 00:34:04,000 --> 00:34:09,800 Speaker 3: more into a minority stake sale. You don't really find 566 00:34:09,880 --> 00:34:13,400 Speaker 3: easily someone that is willing to have a minority stake 567 00:34:13,480 --> 00:34:16,480 Speaker 3: in a company where a Dragi has the driving seat. 568 00:34:16,719 --> 00:34:17,840 Speaker 3: That's put it that way. 569 00:34:18,719 --> 00:34:19,840 Speaker 1: I don't know final thoughts. 570 00:34:21,280 --> 00:34:23,440 Speaker 4: I mean, I guess I'm interested in how this is 571 00:34:23,480 --> 00:34:25,400 Speaker 4: going to play out on a broader scale. You know, 572 00:34:25,440 --> 00:34:28,080 Speaker 4: there are a lot of these bloated cap structures out 573 00:34:28,080 --> 00:34:30,960 Speaker 4: in the market, which is having you know, kind of 574 00:34:31,000 --> 00:34:34,560 Speaker 4: an outsized impact on investors. You know, the high yield 575 00:34:34,600 --> 00:34:39,120 Speaker 4: market has shrunk while these capital structures have grown. So 576 00:34:39,320 --> 00:34:41,359 Speaker 4: it would be interesting to see whether this is going 577 00:34:41,400 --> 00:34:43,319 Speaker 4: to hit you know, like I said before, the real 578 00:34:43,360 --> 00:34:47,560 Speaker 4: economy where it's you know, riskier businesses are finding it 579 00:34:47,800 --> 00:34:51,040 Speaker 4: more difficult to refinance, especially at a time when interest 580 00:34:51,120 --> 00:34:53,759 Speaker 4: rates have surged, and if we're going to see a 581 00:34:53,800 --> 00:34:57,920 Speaker 4: lot more investor caution around say other of these kind 582 00:34:57,960 --> 00:35:02,520 Speaker 4: of large say maybe like be three rated structures and 583 00:35:02,560 --> 00:35:03,680 Speaker 4: potential downgrades. 584 00:35:04,760 --> 00:35:08,880 Speaker 1: Great stuff. Ellen Duncan with Bloomberg News, Ierni Garthia Pees 585 00:35:08,880 --> 00:35:12,160 Speaker 1: also the Bloomberg News, and Aidan Cheslin from Bloomberg Intelligence, 586 00:35:12,160 --> 00:35:13,360 Speaker 1: thank you so much for joining. 587 00:35:13,200 --> 00:35:16,360 Speaker 3: Us, Thank you for having us, Thank you, thank you. 588 00:35:17,480 --> 00:35:20,440 Speaker 1: Check out all of Aidan Cheslin's excellent analysis on the 589 00:35:20,480 --> 00:35:23,440 Speaker 1: Bloomberg terminal, and you really do need to be following 590 00:35:23,480 --> 00:35:26,800 Speaker 1: the great work by Ireni Garthia Pees and Elenor Duncan 591 00:35:26,920 --> 00:35:30,960 Speaker 1: at Bloomberg News, Market Moving Scoops on the Terminal and 592 00:35:31,040 --> 00:35:35,000 Speaker 1: at Bloomberg dot com. And please do subscribe wherever you 593 00:35:35,040 --> 00:35:37,680 Speaker 1: get your podcasts. We're on Apple, Spotify and all other 594 00:35:37,719 --> 00:35:41,480 Speaker 1: good podcast providers, including the Bloomberg Terminal. Give us a review, 595 00:35:41,480 --> 00:35:44,719 Speaker 1: tell your friends, or email me directly at Jcrombie eight 596 00:35:44,840 --> 00:35:48,279 Speaker 1: at Bloomberg dot net. I'm James Crombie. It's been a 597 00:35:48,320 --> 00:35:50,719 Speaker 1: pleasure having you join us again next week on the 598 00:35:50,760 --> 00:36:08,080 Speaker 1: Credit Edge