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Markets appear unconvinced by Altice deleveraging pledge
November 17, 2017 / 5:04 PM / 24 days ago

Markets appear unconvinced by Altice deleveraging pledge

LONDON, Nov 17 (IFR) - Investors appear unconvinced that Altice will shift away from its acquisitive strategy to focus on debt reduction, sending the company’s bonds and shares on a further downward spiral on Friday.

Altice’s president Patrick Drahi made an appearance at Morgan Stanley’s TMT conference in Barcelona on Wednesday to reassure investors that the company will shift focus from acquisitions to debt reduction.

The company’s €675m 4.75% 10.25NC5 senior unsecured note, which has borne the brunt of the sell-off, reversed some of its losses after Drahi’s statement, trading up above 96 after lows around 93, but fell again on Friday.

They are now bid around 94, according to Tradeweb data.

The company’s shares are down 11.3% to €8.17 in the latest trading session, their lowest level since April 2014.

The company has made numerous statements in the past pledging to shift focus from debt-funded acquisitions to refinancing.

Such pledges have a hollow ring given the talk of a US$180bn takeover offer for US peer Charter Communications. Thomson Reuters LPC reported in September that bankers were preparing a debt financing of around US$70bn to back the acquisition, though the company’s pursuit of Charter has reportedly slowed.

The long 10-year bond was issued early October in conjunction with a €1.07bn-equivalent loan split between euros and dollars.

OVERREACTING?

“Bond investors are always going to be in correlation with equity as the equity cushion has decreased in size over the last two weeks,” one TMT analyst told IFR.

“That travels down to how confident bond investors are.”

Altice shares have slumped by around 60% since the start of 2017, pushing the company’s stock market value down to around €11bn, far less than the group’s debts of around €50bn.

But some think the bond market has overreacted to the slump in Altice’s shares.

“We continue to see fundamental value in the assets, which in our view have not been materially impaired,” Bank of America Merrill Lynch analysts wrote in a note earlier this week.

“Over the near-term we view bondholders as chiefly vulnerable to a further decline in the stock. While the bottom is difficult to call... the move is unjustified given the underlying fundamentals of the business,” they said.

A fund manager agreed, calling the move in the bonds “somewhat overdone”, given that the company continues to generate free cashflow.

WARNING SIGN

While markets seem unconvinced, the TMT analyst said that the company’s pledge to delever should be taken seriously given the scale of the market reaction.

“There’s always a degree of scepticism from the market, but this time we should take this seriously because of the pressure we’ve seen on the equity,” he said.

“I think management are now slightly more driven to be bound by their words. There’s a chance we see small things in Europe, such as content based acquisitions. But I think, as of all, especially on the European side of things, any large acquisition would be quite a significant shock,” the analyst added. (Reporting by Yoruk Bahceli, additional reporting by Sudip Kar-Gupta at Reuters)

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