“Souls have the sense of smell in Hades”: Heraclitus of Ephesus, Greek philosopher. I believe I was one of the first investors to discuss Altice France and other companies within the Patrick Drahi galaxy shortly after the first quarter of 2023. At that time, I emphasized the need for investors to pay attention to a company that, for years, had been unable to deleverage to the officially promised 4.5X target, despite repeated assurances to the capital markets. Altice France faced the challenge of rising interest rates, coupled with a capital structure that was levered well beyond 6X net debt. The company had approximately €3 billion in liabilities maturing in 2025 and 2026, €5.4 billion due in 2027, €9 billion in 2028, and €6.7 billion in 2029 (totaling over €24 billion at year-end 2023). Operating performance remained sluggish, and the frequently touted stories of capital expenditure reductions and revenue enhancement initiatives yielded little to no demonstrable progress. In the summer of 2023, I reiterated that some notes were clearly overpriced, while others presented attractive convexity. The market consensus in 2023, albeit peculiar, was largely shaped by a few key ideas: potential buybacks, the sale of French data centers and other non-core assets, and the possibility of equity injections to reduce its massive debt load. Some investors were confident in Patrick Drahi’s ability to repeat the deleveraging plan he successfully executed a few years earlier with another French telecom company, Numericable. However, this time, the credit markets and rates did not permit the same strategies Drahi had employed between 2009 and 2011, in partnership with the private equity firm Cinven—such as refinancing and purchasing debt at a discount. Excessive debt and higher interest rates defeated the telecoms magnate, one of the most astute and aggressive borrowers in the European high-yield market. By the end of 2023, discussions began to focus on how much value has been eroded in the capital stack, as the injections of confidence failed to materialize, and reassurances lost momentum. Many debt instruments, including term loans, “were held steady” for three quarters until March 2024, when investors were hit with the stark reality of a potential coercive restructuring process aimed at reducing leverage to below 4X. At that point, some speculated that Altice France was deliberately severing ties with the capital markets. Following the March 2024 earnings call, a cooperation agreement was formed among investors to preserve value against painful and aggressive exchange offers, with rating downgrades quickly following. Many CLO names were left holding term loans and both secured and unsecured bonds, claiming that the situation had taken them by surprise. My conversations at that time revealed that investors found themselves invested in a company they did not know well with significant hard and real assets on paper, but weak documentation that scarcely protected their positions. After prolonged negotiations, the long-awaited restructuring was finally announced at the end of February 2025. Creditors agreed to reduce the debt stack by €8.6 billion and extend maturities. Leverage will be reduced to 4.6X from a near staggering 7X. In exchange, creditors will receive equity stakes, with different percentages allocated to secured versus unsecured debt holders. Numerous funds and CLO PMs reached out to me regarding this credit, and many research firms released their analyses following the agreement between borrower and investors. After two years of volatility offering entry opportunities, here is my perspective: 1. The final debt reduction is smaller than originally anticipated in 2024 and falls short of the company’s initial objectives announced last year. Ultimately, a “comprehensive solution” was negotiated among stakeholders, rather than a “piecemeal approach”, as referenced during the March 24 conference call. 2. Drahi retains control of the majority of equity and maintains operational control without contributing cash. A conciliatory approach has been adopted by all parties, with investors, in my view, playing a more prominent role in this regard. 3. The actual loss or haircut is manageable, and the potential recovery is promising for senior debt. The unsecured debt has been able to sit at the table and to get something. A different outcome—one where unsecured debt was potentially wiped out—would likely have resulted in a prolonged court process, accompanied by further delays, costs, and uncertainty regarding total debt. It was essential to avoid the scenario of a Conciliatory process . Unsecured creditors achieved more than expected (for sure in equity but possibly also in reinstated paper), to the detriment of senior debt holders. This outcome is strong for unsecured debt, which was previously considered nearly worthless based on telecom valuations and company’s debt. The future recovery hinges on Altice’s performance. 4. The restructured debt leaves the company slightly over-levered. Conservative valuations are now likely in the 4.5-5X range. Economic cyclicality and sector-specific challenges have pushed telecom multiples lower, and Altice France’s EBITDA headwinds remain, particularly in areas such as competition in the residential telecom market, the mobile segment, and declining construction activity. The sale of non-core assets remains essential to reduce leverage in a company that could see a 10-12% YoY decline in EBITDA for 2024, with further downside risk. The timing of an operational turnaround is uncertain. A key point to remember is that telecom companies differ from retailers or durable goods firms exposed to consumer behavior. Any further SFR soft economic performance will erode equity value over time, which could affect unsecured creditors in a second stage. For this reason, I maintain a "perform" recommendation on the senior secured liabilities with short maturities. Secured creditors have time to adjust their holdings should earnings worsen over the next 12-15 months. The upside potential remains with senior debt, given the highly volatile credit name and the widening credit spreads for the whole market. The French TMT sector should see more stability going forward (with Orange and Bouygues dictating pricing levels and structures, and Iliad as an element of disruption), but key uncertainties persist, especially regarding SFR’s competitive positioning against major peers. SFR must demonstrate the ability to generate positive marginal free cash flow—something it hasn’t done since 2021—a critical element that was overlooked in recent years’ results. I am particularly curious about the future 2025 and 2026 EBITDA levels, as in two years, SFR will need to address refinancing for its first maturing liabilities in 2028. In early 2023, investors were relatively unconcerned when leverage stood at 5.5X with flat revenues and EBITDA, as the first significant debt maturity wasn’t due until January 2025. Maybe, once learned the hard lesson, more attention will be deserved to the Altice name and a subdued outlook will be recognized in advance. The telecom company should have attracted more insightful interest since 2022, when investors were navigating across loans and bonds blindly due to the absence of guidance provided by the management. When I hear stories that “everything was a surprise” it doesn't quite fit with the circumstances that we were dealing with a weak credit (plagued also by Drahi's expansionary ambitions of three and four years ago). 5. Although I was critical of the cooperation agreements, this time the united front of creditors proved effective. I attribute this success to the enormous amount of debt involved, the critical big exposure of the CLO vehicles, and the unique nature of Altice’s equity ownership. This deal is a resounding success and one of the largest LME deals ever executed. It is a restructuring free from further red flags in the near term, a result that is unique in Europe thus far. The focus now moves to two other credit stories: Altice International and Altice USA, where financial leverage remains high, leaving a wide range of potential outcomes for the outstanding debt. Will investors recognize this narrative once again?

Altice France (SFRFP)