WEBVTT - Altice ‘Jenga Tower’ Menaces Global Credit Markets 0:00:17.960 --> 0:00:20.680 Hello, and welcome to the Credit Edge, a weekly markets podcast. 0:00:20.760 --> 0:00:23.360 My name is James Crumby. I'm a senior editor at Bloomberg. 0:00:23.720 --> 0:00:26.040 This week, we're very pleased to welcome Aidan Cheslin from 0:00:26.079 --> 0:00:28.160 Bloomberg Intelligence. How are you Aidenkay? 0:00:28.240 --> 0:00:30.160 Thank you, James Hailing very. 0:00:30.000 --> 0:00:31.800 Good, Thanks so much for joining us today. We're excited 0:00:31.840 --> 0:00:34.360 to get your thoughts on the telecom sector, especially Altis. 0:00:35.360 --> 0:00:39.520 Also delighted to welcome back Irene Garthia Pees with Bloomberg News. 0:00:39.560 --> 0:00:40.919 Great to see you again, Ay, Ronny. 0:00:40.720 --> 0:00:42.240 How are you glad to be here? 0:00:42.600 --> 0:00:45.479 And also from Bloomberg News. Brilliant to see Eleanor Duncan, 0:00:45.520 --> 0:00:47.720 who covers leverage finance in London. How's it going? 0:00:48.240 --> 0:00:49.480 Thanks for having me. I'm good. 0:00:50.200 --> 0:00:53.120 So we're here to talk about Altis. It's a sprawling 0:00:53.320 --> 0:00:57.040 Europe based telecoms company with a colorful billionaire at the helm, 0:00:57.080 --> 0:01:00.760 now tipping into distress. They have about sixty billion dollars 0:01:00.760 --> 0:01:02.720 in debt and there's a fairly high chance of them 0:01:02.760 --> 0:01:05.760 not paying it all back, which will affect a lot 0:01:05.760 --> 0:01:08.120 of different types of investor and will weigh on the 0:01:08.120 --> 0:01:11.040 sector and more broadly on credit markets, particularly in Europe. 0:01:11.600 --> 0:01:14.880 It's a vast debt complex and a frequent issuer. They're 0:01:14.920 --> 0:01:17.920 also doing some fairly creative maneuvers to try and shift 0:01:17.959 --> 0:01:20.360 assets around the balance sheet and shield them from claims 0:01:20.400 --> 0:01:23.959 if things do go bad, so called unrestricted subsidiaries. I'm 0:01:24.000 --> 0:01:26.800 hoping one of you can help explain that and what 0:01:26.880 --> 0:01:29.400 kind of precedent is being set here. But the sheer 0:01:29.480 --> 0:01:31.720 volume of debt in a variety of currencies makes it 0:01:31.760 --> 0:01:35.240 a widely held name by credit investors, hard to avoid 0:01:35.319 --> 0:01:37.880 in the bond and loan market, and there are implications 0:01:37.880 --> 0:01:41.560 too for collateralized loan obligations. So let's start there. Can 0:01:41.600 --> 0:01:43.800 you speak to that eleanor what's the mood in the 0:01:43.840 --> 0:01:45.280 market when you ask about Altis? 0:01:45.920 --> 0:01:50.920 As you mentioned Artisse has, I mean especially Artist France. 0:01:50.960 --> 0:01:53.160 So artist has an enormous debt pile of you know, 0:01:53.240 --> 0:01:57.120 kind of around sixty billion dollars and Artist France has 0:01:57.160 --> 0:02:01.760 about twenty four billion euros of that. So I think 0:02:02.280 --> 0:02:06.080 some bank analysts are estimating that ninety percent of European 0:02:06.200 --> 0:02:11.840 clos are exposed to Artis. So Artisa's troubles are impacting, 0:02:12.520 --> 0:02:16.560 you know, the entire market. The issue is that when 0:02:17.040 --> 0:02:20.239 you know now Moody's in S and P has downgraded 0:02:20.400 --> 0:02:24.320 Artise France to triple C. The problem is that clos 0:02:24.320 --> 0:02:27.800 are restricted in how much they can hold of, you know, 0:02:27.840 --> 0:02:30.639 the kind of riskiest junk debt. I think it's something 0:02:30.760 --> 0:02:33.080 like they're allowed to hold something like seven point five 0:02:33.160 --> 0:02:38.600 percent in terms of their overall portfolios. So now there'll 0:02:38.639 --> 0:02:41.760 be under pressure either you know, to sell Autie's debt 0:02:41.880 --> 0:02:45.119 or maybe some of the higher priced triple C debt 0:02:45.120 --> 0:02:49.560 that they have in their portfolios. The reason that that matters, 0:02:49.639 --> 0:02:53.040 I guess in the broader leverage finance market is because 0:02:53.240 --> 0:02:56.919 triples sorry, clos are a crucial cog of the market. 0:02:56.919 --> 0:03:01.200 They're the biggest buyers of leverage loan and so this 0:03:01.320 --> 0:03:04.639 might impact, you know, kind of how eager banks are 0:03:04.760 --> 0:03:09.040 to underwrite new LBOs. It might also impact, you know, 0:03:09.120 --> 0:03:12.639 how easy it is for some of the riskiest borrowers 0:03:12.680 --> 0:03:14.160 to refinance their debt. 0:03:14.639 --> 0:03:16.360 Just to make it easy for some of our readers 0:03:16.360 --> 0:03:20.799 who don't know, clos, they basically buy leverage loans, which 0:03:20.800 --> 0:03:25.880 are risky company loans, and they repackaged them into securities 0:03:25.919 --> 0:03:28.200 and sell them at some different levels of risk, right 0:03:28.680 --> 0:03:32.160 right exactly, And so in terms of like the impact 0:03:32.240 --> 0:03:35.520 just one single name, one company is having this kind 0:03:35.560 --> 0:03:39.680 of massive effect on Europe and also other parts of 0:03:39.720 --> 0:03:40.960 the world. I mean we be saying the same in 0:03:40.960 --> 0:03:41.440 the US. 0:03:41.720 --> 0:03:45.960 Yeah. I think Bank of America analysts had that when 0:03:47.280 --> 0:03:51.760 Artise France was downgraded to triple C, something like thirteen 0:03:51.880 --> 0:03:57.320 percent of US clos have already breached that you know, 0:03:57.520 --> 0:04:00.400 triple C requirement. So this is something that we're seeing 0:04:00.400 --> 0:04:03.640 across the world. And again kind of goes to the 0:04:03.640 --> 0:04:07.520 fact that this single credit has built up massive amounts 0:04:07.520 --> 0:04:12.680 of debt mainly during the era of easy money and 0:04:12.720 --> 0:04:15.800 thanks to kind of very aggressive acquisitions, and now you know, 0:04:15.880 --> 0:04:17.400 creditors are paying the price of that. 0:04:18.440 --> 0:04:21.120 Is it a big enough event to shut down that market? 0:04:21.160 --> 0:04:23.279 I mean, they're just so much cash chasing every deal 0:04:23.320 --> 0:04:24.599 at the moment. I mean that the yields are so 0:04:24.680 --> 0:04:27.400 high that investors just seem to love credit generally. But 0:04:27.560 --> 0:04:30.159 is this name big enough to cause that kind of 0:04:30.800 --> 0:04:31.600 you know, dislocation. 0:04:33.000 --> 0:04:36.520 I mean, Celos have had a very good start to 0:04:36.560 --> 0:04:39.720 the year. I think you know, something like record issuance 0:04:39.800 --> 0:04:41.800 at least for you know, a number of years, so 0:04:41.839 --> 0:04:46.120 they've had as opposed to last year when issuance was 0:04:46.160 --> 0:04:49.719 in the doldrums, they've had a very strong start now. 0:04:50.480 --> 0:04:53.960 COLO managers and bankers tend to stress the point that 0:04:54.120 --> 0:04:57.680 even if a credit is downgraded into this you know, 0:04:57.800 --> 0:05:03.400 junkiest junk territory, they're not forced sellers. So they might 0:05:03.560 --> 0:05:06.440 choose to you know, hold on to Altis debt and 0:05:06.480 --> 0:05:11.320 maybe until the prices recover and as in, you know, 0:05:11.400 --> 0:05:13.760 kind of stay in breach of that these kind of 0:05:13.760 --> 0:05:18.839 triple C buckets. They might look to sell other CLO collateral. 0:05:19.240 --> 0:05:22.720 But that means that we're seeing the impacts of Altis's 0:05:22.760 --> 0:05:26.920 troubles on other leverage loan issuers in the market. So 0:05:27.520 --> 0:05:32.040 I think when when you know, France was first downgraded 0:05:32.040 --> 0:05:35.280 into triple C, we saw impacts for example on you know, 0:05:35.360 --> 0:05:39.440 the five billion dollar loan from ZAO, would say a 0:05:39.600 --> 0:05:44.520 US issuer, their prices were hit in the secondary loan market. 0:05:45.080 --> 0:05:48.480 So people aren't saying that the CLO market is clogged 0:05:48.560 --> 0:05:51.760 up yet, but it's for sure that a lot of 0:05:52.000 --> 0:05:54.880 managers are going to be impacted by this. I mean 0:05:54.920 --> 0:05:59.520 one CLO manager described alties Front's impact, you know, the 0:05:59.600 --> 0:06:02.599 downgrade as a quote widow maker for some managers in 0:06:02.600 --> 0:06:05.039 the market. We've yet to see that, but you know, 0:06:05.520 --> 0:06:06.840 hold this, hold this. 0:06:06.839 --> 0:06:11.080 Page sounds grim widow maker, So there's definitely some contagion there. 0:06:11.480 --> 0:06:13.920 Let's talk about the drama at the company level, and 0:06:13.960 --> 0:06:16.039 it gave us a flavor of what's going on. There's 0:06:16.080 --> 0:06:19.400 a very colorful billionaire there, and there's all sorts of 0:06:19.440 --> 0:06:23.799 stories about artworks and you know, colorful phrases like Dayton switch, 0:06:23.880 --> 0:06:25.440 bullyboy tactics. What's going on. 0:06:26.040 --> 0:06:30.760 There is a very colorful character controlling the company who's 0:06:30.760 --> 0:06:35.320 built this empire basically with mergers and acquisitions funded with 0:06:35.440 --> 0:06:38.680 debt at a time when dead was very cheap. And 0:06:39.480 --> 0:06:43.160 it's been a while since this kind of structure has 0:06:43.200 --> 0:06:46.400 been a concern. Already, back in two thousand and sixteen 0:06:46.480 --> 0:06:51.200 or seventeen, we already had stories that pointed about Eltis 0:06:51.240 --> 0:06:57.880 having sixty elties the whole empire. Now it's divided in 0:06:57.920 --> 0:07:02.159 three seals after an inter all your organization, it's International, 0:07:02.360 --> 0:07:07.400 it's Front, and it's alts US and overall, the sixty 0:07:07.400 --> 0:07:11.080 billion has been a concern, in particular for the twenty 0:07:11.080 --> 0:07:14.880 four billion that they have in Europe. It's the largest 0:07:15.240 --> 0:07:20.200 junk kissure by far, and then he has been very 0:07:21.160 --> 0:07:24.560 open about this. The fact that I'm so big in 0:07:24.600 --> 0:07:27.000 the credit market is not my problem as much as 0:07:27.000 --> 0:07:31.400 the bank's problem, or in this case, bondholders and other 0:07:31.840 --> 0:07:36.960 investors problem. IF's what's the worst that can happen to me? 0:07:37.560 --> 0:07:40.840 If I can't repay my mortgage? Well, okay, fine, the 0:07:40.880 --> 0:07:43.480 bank will get back the keys of the house. But 0:07:43.520 --> 0:07:45.840 I've enjoyed all these years and I've been happy in 0:07:45.920 --> 0:07:52.160 that has He said that very very openly. So that's 0:07:52.360 --> 0:07:56.960 that's the mood, and that's the playbook now. He what 0:07:57.120 --> 0:08:01.360 was interesting, The timing is interesting and also the approach. 0:08:01.840 --> 0:08:06.320 Let's go back to last year. August last year, there 0:08:06.400 --> 0:08:10.560 were summer last year there were news that Portugal was 0:08:10.600 --> 0:08:17.200 investigating Altis Portugal, which is part of Altis International, and 0:08:17.240 --> 0:08:21.360 in particular they were investigating a few individuals, one of 0:08:21.400 --> 0:08:25.640 them Aarano Pereda is the co founder of Altis, so 0:08:25.880 --> 0:08:32.960 very very close person to Patrick Dry for corruption and 0:08:34.720 --> 0:08:41.160 Patrick Dry whent he appeared on on the company's earnings 0:08:41.200 --> 0:08:48.360 in August to kind of reensure reassured investors that Altis 0:08:48.600 --> 0:08:54.680 was a victim of this corruption case and that well 0:08:55.480 --> 0:08:58.040 he was not aware of this and that he was very, 0:08:58.120 --> 0:09:02.960 very disappointed with the these individuals. Then he went on 0:09:03.000 --> 0:09:06.320 a road show in September in London and New York 0:09:06.440 --> 0:09:09.880 to tell investors that everything and anything in the Altist 0:09:09.960 --> 0:09:16.800 universe globally US, Portugal, Israel, and France and American Republic 0:09:16.920 --> 0:09:20.200 was up for sale at a price, and that he 0:09:20.200 --> 0:09:25.959 would use that to repay that. So the asset sale 0:09:26.000 --> 0:09:31.559 process started and he for for the French silo. They 0:09:31.640 --> 0:09:35.160 agreed on the on the disposals of two assets. So 0:09:35.200 --> 0:09:37.760 the assumption in the market was that they were going 0:09:37.760 --> 0:09:41.000 to use the proceeds to repay that. But then the 0:09:41.040 --> 0:09:44.079 company had a surprise for creditors, which is that right 0:09:44.160 --> 0:09:48.560 before agreeing on the sale, they removed those assets from 0:09:48.600 --> 0:09:54.679 the restricted group and moved it to unrestricted entities, which 0:09:55.240 --> 0:09:59.559 essentially means that it's out of reach of creditors. If 0:09:59.559 --> 0:10:02.760 it ended up in a bankruptcy case, then yes, as 0:10:02.800 --> 0:10:07.439 in an an insolvency procedure, yes, creditors would have records 0:10:07.440 --> 0:10:11.480 against those assets. But what the company can do in 0:10:11.520 --> 0:10:15.840 the meantime if before it ended in that scenario is 0:10:15.920 --> 0:10:20.320 it can raise debt from third party, for instance, against 0:10:20.320 --> 0:10:24.360 those assets, and that collateral would be for the new 0:10:24.480 --> 0:10:29.640 money provider. And so what the company did was in 0:10:29.679 --> 0:10:36.160 the last earnings call in March, they told investors about 0:10:36.200 --> 0:10:40.640 this move and also that they would only consider using 0:10:40.679 --> 0:10:46.640 the proceeds to repay that if creditors participated in discounted transactions. 0:10:47.200 --> 0:10:50.160 Now that of course shifted the mood because everyone was 0:10:50.200 --> 0:10:53.559 expecting a repayment and all of a sudden taking they 0:10:53.559 --> 0:10:56.360 were told like, actually, you know what, you need to 0:10:56.400 --> 0:10:59.360 take a haircut. We don't know how big the haircut, 0:10:59.440 --> 0:11:03.840 we don't know. That's what's the plan. But there he's 0:11:04.080 --> 0:11:06.439 he's created some bad blood, let's put it that way 0:11:06.480 --> 0:11:07.439 with creditors. 0:11:07.640 --> 0:11:10.000 So these the bully boy tactics you've been writing about. 0:11:10.800 --> 0:11:13.720 That's yeah, that's exactly why it does. For a lot 0:11:13.760 --> 0:11:15.800 of people, it does feel like a ransom. 0:11:16.040 --> 0:11:18.000 Why is he doing this? And I mean, obviously you 0:11:18.000 --> 0:11:20.840 say that it's a situation where you know, he owes 0:11:20.880 --> 0:11:23.200 a lot of money, so it's more that the lenders 0:11:23.280 --> 0:11:26.080 problem at this point because there's so much outstanding. But 0:11:26.280 --> 0:11:28.240 doesn't you know, isn't his company one that has to 0:11:28.280 --> 0:11:30.480 come back to the market. Aren't they one that you know, 0:11:30.600 --> 0:11:32.440 they require a lot of capital to run their business. 0:11:32.480 --> 0:11:35.400 So he's kind of burning his bridges with creditors. Isn't 0:11:35.400 --> 0:11:37.120 there a long term negative impact for him? 0:11:37.760 --> 0:11:42.160 Yes, although there are different theories about why he is 0:11:42.200 --> 0:11:46.480 doing it now, and I probably it's not down to 0:11:46.520 --> 0:11:48.839 a single one, but the most likely one is that 0:11:49.440 --> 0:11:53.000 because everyone was expecting to for the company to starty 0:11:53.000 --> 0:11:56.640 peeing dead, the price of the bonds and the loans 0:11:56.840 --> 0:12:00.400 had had increased, so the window for the comp need 0:12:00.400 --> 0:12:04.840 to take advantage of the discounts to do buybacks, for instance, 0:12:05.440 --> 0:12:09.120 was closing. So it did feel like they wanted to 0:12:09.160 --> 0:12:11.320 send the message that no, no, no, Actually, like the 0:12:11.360 --> 0:12:15.960 only way to solve our leverage problem is if we 0:12:16.000 --> 0:12:21.400 do this haircut thing, and they want to cut ten billion, 0:12:22.400 --> 0:12:26.720 which means that they will still have about fourteen billion 0:12:26.760 --> 0:12:30.080 outstanding in the French silo. So yes, they will need 0:12:30.120 --> 0:12:32.640 to come back to the market. But I guess to 0:12:32.679 --> 0:12:37.040 an extent they're betting that creditors will forget in a 0:12:37.080 --> 0:12:38.000 couple of years. 0:12:38.240 --> 0:12:41.040 It's tony possible. So I do want to bring in aiden, 0:12:41.080 --> 0:12:43.920 but before we do that, I'll know what's the kind 0:12:43.920 --> 0:12:47.360 of emotional impact on the market of people furious at 0:12:47.360 --> 0:12:48.680 this billionaire. 0:12:50.440 --> 0:12:54.360 Yeah, I mean people are upset, I guess speaking to 0:12:55.240 --> 0:13:00.320 high bond investors, and that's you know, I'll tease makes 0:13:00.400 --> 0:13:03.960 up a huge amount of the high old bond market too. 0:13:04.400 --> 0:13:08.319 You know, everyone is suffering pain, everyone has exposure. They 0:13:08.360 --> 0:13:10.520 haven't been able to avoid it. You know, they've built 0:13:10.640 --> 0:13:14.480 up exposure to the company over this you know kind 0:13:14.480 --> 0:13:18.760 of era of easy money, when getting a return was 0:13:18.800 --> 0:13:22.359 the priority. I guess they kind of saw what telecoms 0:13:22.360 --> 0:13:24.079 for a long time was like the darling of the 0:13:24.120 --> 0:13:29.040 high old market, and so now they I guess they 0:13:29.080 --> 0:13:33.920 see themselves as having you know, helped Drahi to where 0:13:33.960 --> 0:13:36.560 he's got. He's a he's a billionaire, he lives this, 0:13:36.679 --> 0:13:41.440 you know, kind of fairly, you know, lavish lifestyle, and 0:13:41.920 --> 0:13:45.120 now he's turning to the secured and they see him 0:13:45.120 --> 0:13:47.200 as you know, having turned to the secured creditors who 0:13:47.240 --> 0:13:49.640 have got him there saying actually, you guys are going 0:13:49.720 --> 0:13:51.880 to have to take the pain. So there's there's a 0:13:51.920 --> 0:13:55.760 lot of there's a lot of bad feeling in the market, 0:13:55.960 --> 0:13:59.160 and they say, you know, there's a number of these 0:13:59.360 --> 0:14:03.400 companies are headed up by I guess similar figures to Drahi, 0:14:04.400 --> 0:14:07.320 maybe like the call sens of this world in the 0:14:07.360 --> 0:14:10.200 case of you know, the ardor chairman that are pulling 0:14:10.240 --> 0:14:13.079 similar tricks, and they're saying, you know, Altisse France was 0:14:13.120 --> 0:14:16.360 the last straw. We're not going to support these kind 0:14:16.440 --> 0:14:20.520 of companies anymore. And you know, as Ernie says, maybe 0:14:20.880 --> 0:14:24.080 in a couple of years time, they'll eat their words 0:14:24.200 --> 0:14:26.800 or you know, kind of least. Memories are sometimes short 0:14:26.840 --> 0:14:30.000 in this market. But for now that they're upset. 0:14:31.000 --> 0:14:33.960 Let's talk to Aidan Cheslin at Bloomberg Intelligence. You look 0:14:33.960 --> 0:14:37.080 at this stuff in great detail. You have described Alts 0:14:37.240 --> 0:14:41.560 as teetering like a Jenga tower. So what's the situation 0:14:41.640 --> 0:14:43.360 and aiden how do you view things? 0:14:44.280 --> 0:14:48.640 Yeah, I I think you know, clearly the company themselves 0:14:48.720 --> 0:14:54.640 have said that the current debt structure is not sustainable 0:14:54.800 --> 0:14:58.640 going forward. You could certainly argue they've made that worse 0:14:58.720 --> 0:15:01.440 by taking assets out of structure. Not just now, by 0:15:01.480 --> 0:15:05.680 the way, but that behavior dates back to twenty twenty 0:15:05.720 --> 0:15:09.160 one when they sold their tower business. Hevery and yank 0:15:09.240 --> 0:15:13.000 those proceeds out of the company rather than reducing debt. 0:15:14.920 --> 0:15:17.360 You know, you have leverage of six point four times 0:15:17.800 --> 0:15:20.680 at the end of last year. The company is guiding 0:15:20.800 --> 0:15:23.320 that ebit DA will be down mid to high single 0:15:23.360 --> 0:15:28.160 digits this year. They're also interest costs because of where 0:15:28.200 --> 0:15:30.240 we are in the credit cycle, interest costs are going 0:15:30.320 --> 0:15:32.840 up fast than they're able to cut the capex, which 0:15:32.920 --> 0:15:36.360 means they'll be free cashtro negative this year. So you know, 0:15:36.440 --> 0:15:38.520 we have on our numbers leverage going from six point 0:15:38.520 --> 0:15:40.760 four to seven times this year and seven point seven 0:15:40.960 --> 0:15:48.640 the next year. Recent transactions where we've seen European telecoms 0:15:48.640 --> 0:15:53.040 companies being traded or bought and sold, they've been going 0:15:53.040 --> 0:15:55.800 for EVY to ebit DAR multiples of close to five 0:15:55.920 --> 0:15:59.320 five and a quarter times. So clearly, this kind of 0:15:59.480 --> 0:16:01.720 level of debt we have now there's no equity value 0:16:01.760 --> 0:16:04.800 in the business is probably you know, if it was 0:16:04.840 --> 0:16:07.920 to go into into a hard restructuring, you'd probably wipe 0:16:07.920 --> 0:16:11.640 out the subordinated debt as well, and the and the 0:16:11.720 --> 0:16:15.120 leverage is spiraling. So please, something needs to be done. 0:16:16.560 --> 0:16:18.440 And I think that's that's the crux of what the 0:16:18.520 --> 0:16:21.360 company was trying to get at on the call. It's 0:16:21.400 --> 0:16:23.600 just a question of how much gets done and who 0:16:23.640 --> 0:16:24.520 takes the pain. 0:16:25.040 --> 0:16:27.760 And selling the assets. We've talked about that on this show. 0:16:28.280 --> 0:16:30.280 Are they kind of getting rid of the crown duels. 0:16:30.280 --> 0:16:33.520 Are they undermining the value by by selling the assets the. 0:16:33.440 --> 0:16:36.680 Businesses that have been stripped from the group so far 0:16:36.800 --> 0:16:40.200 a kind of non core. I think the problem is 0:16:40.280 --> 0:16:44.120 fundamentally that the leverage of the core s FR business 0:16:45.520 --> 0:16:49.160 is just way too high relative to to the value 0:16:49.160 --> 0:16:54.160 of the company. And that's that's what's kind of hurting them, 0:16:54.440 --> 0:16:57.080 and it's part of what will form the negotiations between 0:16:58.360 --> 0:17:04.119 the creditors and the the shareholder, because obviously, if the 0:17:04.160 --> 0:17:06.879 company is worth around five to five and a quarter 0:17:06.960 --> 0:17:10.320 times ebit DAR, if you can cut the leverage down 0:17:10.359 --> 0:17:13.320 to four times or below, which is where Artista saying 0:17:13.320 --> 0:17:16.119 they'd like it cut down to through debt haircuts, you 0:17:16.200 --> 0:17:20.399 are recreating equity value to the shareholder when none exists 0:17:20.400 --> 0:17:24.040 today as well. So that's that's one part of the discussions. 0:17:24.080 --> 0:17:29.040 How much will creditors want to give into the to 0:17:29.119 --> 0:17:33.600 the shareholder and create value there versus preserving value for themselves. 0:17:34.280 --> 0:17:36.560 And what about all the shenanigans with moving the debt around? 0:17:36.600 --> 0:17:38.880 I mean, is this something that investors should have known 0:17:38.920 --> 0:17:40.720 about because it was in the bond docks or the 0:17:40.720 --> 0:17:43.040 covenants and they you know, they were warned, but they 0:17:43.080 --> 0:17:46.040 just didn't take any notice, and now it's coming home 0:17:46.080 --> 0:17:46.480 to roost. 0:17:46.880 --> 0:17:49.720 Yeah, I think it's a symptom of weakening and documentation 0:17:49.800 --> 0:17:52.760 that we've seen as a process over the last decade 0:17:52.880 --> 0:17:58.240 or more. Companies as clearly entitled to do this. It 0:17:58.320 --> 0:18:03.160 is clearly aggressive, but you know, the limitations were there 0:18:03.160 --> 0:18:07.920 in the documentation. And we're seeing a deal this week 0:18:08.000 --> 0:18:12.320 with Telecommentalia where they're offering their bondholders the chance to 0:18:12.359 --> 0:18:16.440 move into the network business, which is essentially being bought 0:18:16.480 --> 0:18:19.480 out and lbo' by KKR at the starting leverage of 0:18:19.520 --> 0:18:21.600 four point three times, but we think going up to 0:18:21.680 --> 0:18:25.440 over five times, and they're being offered a security package 0:18:25.520 --> 0:18:29.280 but otherwise basically the same terms of the largely investment 0:18:29.280 --> 0:18:33.480 grade style documents they had before. And many investors probably 0:18:33.520 --> 0:18:36.879 will do that switch into the tower company because in 0:18:36.920 --> 0:18:39.600 the long term it's probably a more stable asset, But 0:18:40.240 --> 0:18:42.320 they're going to be sitting in a company over five 0:18:42.359 --> 0:18:45.800 times levered, run by KKR with investment grade style documents, 0:18:45.880 --> 0:18:50.680 and that's been the way of the market for quite 0:18:50.680 --> 0:18:51.360 some time now. 0:18:51.920 --> 0:18:54.600 And let's say they do come out at the other 0:18:54.680 --> 0:18:57.639 side of this, you know, they do put some losses 0:18:57.680 --> 0:19:01.040 on creditors, but they they come out at the other 0:19:01.119 --> 0:19:02.760 end and then they have to come back to the market. 0:19:02.800 --> 0:19:05.119 Do you expect there to be any premium on, you know, 0:19:05.240 --> 0:19:07.720 or any you know, having to pay a bit more 0:19:07.760 --> 0:19:09.600 to access the market after that, or is it just 0:19:09.640 --> 0:19:12.080 such such a big name that investors will forget. 0:19:12.720 --> 0:19:16.439 I think investors will remember this one in particular for 0:19:16.520 --> 0:19:20.680 some time. Don't forget through the other silos, whether it's 0:19:20.680 --> 0:19:25.760 Alti's international for example, They basically put, with a very 0:19:25.760 --> 0:19:29.159 few exceptions, the entire company up for sale. So I 0:19:29.160 --> 0:19:31.160 think the plan is to try and extract as much 0:19:31.240 --> 0:19:35.800 value as they can and kind of carry on selling 0:19:35.840 --> 0:19:38.200 assets and taking the value that they can out and 0:19:38.520 --> 0:19:44.639 repaying debt elsewhere. So probably if you if you, you know, 0:19:44.800 --> 0:19:47.840 take a straight line extrapolation of that, and they're probably 0:19:47.880 --> 0:19:50.719 hoping that once this debt haircut is done, they wouldn't 0:19:50.760 --> 0:19:54.520 necessarily need to issue a substantial amount in the next 0:19:54.560 --> 0:19:55.719 two to three years. 0:19:56.440 --> 0:19:59.320 So these aggressive debt management move they've been seen before 0:19:59.359 --> 0:20:02.080 in the US, for sample J Crew, but fairly new 0:20:02.440 --> 0:20:06.399 in Europe at this point. Creditors are organizing, right it 0:20:06.440 --> 0:20:08.720 only just like they do in the US. How does 0:20:08.760 --> 0:20:10.760 that work? What's the next stage? What are we looking for? 0:20:11.240 --> 0:20:14.280 So what they've done so far? There are two in 0:20:14.600 --> 0:20:17.119 the case of all these trands that are too credator groups. 0:20:17.240 --> 0:20:23.919 One is a group of crosshold of investors that have 0:20:23.960 --> 0:20:28.880 crossholdings in the unsecured bonds and the secure bonds that 0:20:28.880 --> 0:20:32.840 that one has about four billion of alt is dead. 0:20:33.320 --> 0:20:37.200 And then there's a bigger group of secured lenders and 0:20:37.640 --> 0:20:44.720 bond holders that these ones have signed a cooperation agreement 0:20:45.080 --> 0:20:49.600 so called that basically what is we're going to stick 0:20:49.640 --> 0:20:52.840 together so that the company can't play tricks and can't 0:20:54.400 --> 0:20:58.920 try to to split us and play us against each other. 0:21:00.400 --> 0:21:03.159 What is interesting, which is again for Europe, is very 0:21:03.240 --> 0:21:07.639 unusual because it's often seen as uncompetitive, so it's a 0:21:07.640 --> 0:21:11.240 bit of a gray area depending on what they're used for. 0:21:12.600 --> 0:21:14.280 The thing here is that we have no idea what 0:21:14.359 --> 0:21:16.520 the company wants to do. We don't know what they 0:21:16.520 --> 0:21:20.560 will come up with. So they know that they want 0:21:20.600 --> 0:21:24.600 to band together and push against any potential abuse, which 0:21:24.640 --> 0:21:27.159 is don't know what the abuse is going to look like. 0:21:28.040 --> 0:21:31.199 And then the interesting thing about this one is that 0:21:31.280 --> 0:21:35.640 it's six months, which is way longer than they usually 0:21:35.960 --> 0:21:39.080 are because typically it's like ninety day agreement and then 0:21:39.080 --> 0:21:42.800 they get renewed. This one is for six months, which 0:21:42.880 --> 0:21:45.919 you can extend twice for sixty days. 0:21:46.480 --> 0:21:48.879 So do you expect them to be successful in any way? 0:21:48.880 --> 0:21:51.400 I mean, is there any sign that this might work? 0:21:51.440 --> 0:21:53.200 You know, the credits can band together and they can 0:21:53.240 --> 0:21:54.280 defend themselves. 0:21:54.880 --> 0:21:59.159 There have been instances before, like Dish in the US, 0:21:59.240 --> 0:22:05.240 where creditors pushing bag was a successful move. The thing 0:22:05.320 --> 0:22:08.320 is that this one is also a very very big group, 0:22:08.560 --> 0:22:13.359 so it's also TVD if they will manage to stick 0:22:13.400 --> 0:22:14.920 together given the size of the group. 0:22:15.800 --> 0:22:18.120 So just going back to the impact more broadly, I mean, 0:22:18.240 --> 0:22:21.600 elen'tor mentioned it and aid and I just wanted to 0:22:21.600 --> 0:22:26.320 get your take on the kind of ripple effect through telecoms, 0:22:26.359 --> 0:22:29.520 you know, through other sectors or is it really just 0:22:29.520 --> 0:22:32.520 a standalone Altias story that people just putting this in 0:22:32.520 --> 0:22:33.480 an Oltis box. 0:22:34.600 --> 0:22:37.760 Now we've seen obviously things like the situation with Arda 0:22:37.840 --> 0:22:40.639 at the moment as well. There's a few of these 0:22:40.720 --> 0:22:42.879 kind of restructurings going on at the moment, and I 0:22:42.920 --> 0:22:48.160 think there's been I think you mentioned it earlier. Ins 0:22:48.200 --> 0:22:52.000 of the weakness of the documentation and the availability to 0:22:52.040 --> 0:22:56.879 move assets around has been part of the problem for creditors. 0:22:57.520 --> 0:23:00.719 You also have in several of these situationstions in Outis 0:23:00.720 --> 0:23:04.920 France is one of them, even have competing interests between 0:23:05.119 --> 0:23:10.040 different creditor groups. So within out Ease France, there's obviously 0:23:10.200 --> 0:23:13.160 some creditors that are solely in the senior secure debt 0:23:13.200 --> 0:23:15.960 and there are some that are in the subordinated debt 0:23:16.240 --> 0:23:19.280 as well. And if you're trying to preserve value in 0:23:19.800 --> 0:23:21.720 one area, it means you have to give up more 0:23:21.800 --> 0:23:25.920 value in another area, and you end up having some 0:23:26.000 --> 0:23:30.560 creditor on creditor violence as well, and certainly see you 0:23:31.480 --> 0:23:34.480 there's instances where that can happen. You know, every each 0:23:34.520 --> 0:23:40.159 of these restructurings have their own unique circumstances at the 0:23:40.200 --> 0:23:44.000 root cause of it, although, has been a combination of 0:23:44.760 --> 0:23:50.760 higher interest rates, weak financial performance, poor documentation. 0:23:51.880 --> 0:23:54.080 We talked to a big investor in Europe not that 0:23:54.160 --> 0:23:56.159 long ago, a couple of episodes ago about you know, 0:23:56.200 --> 0:23:58.959 the risks to credit markets. We always bring those up, 0:23:59.359 --> 0:24:02.840 and it's she said her biggest concern she's based in 0:24:02.880 --> 0:24:06.639 Europe was the spread of credits or on credit of 0:24:06.720 --> 0:24:10.960 violence from the US to Europe. As you just mentioned, 0:24:11.040 --> 0:24:13.120 aiden this is kind of like, you know, the beginning 0:24:13.119 --> 0:24:16.760 of it potentially. I don't know. Do you think this 0:24:16.920 --> 0:24:19.680 marks the beginning of the spread of this to Europe. 0:24:20.600 --> 0:24:25.199 Well, we certainly are seeing it in capital structures where 0:24:25.440 --> 0:24:29.679