Moody’s downgraded Altice International, a telecoms company widely held in European CLO portfolios, to Caa1 from B3 on Tuesday, and cut the borrower’s credit outlook to negative from stable.
This could meaningfully increase European CLOs’ exposure to triple-C debt after Altice France’s downgrade two months ago edged them closer to their CCC bucket thresholds.
According to Fitch data cited by Credit Sights, 82% of European CLOs held debt from the Portugal-based telecom company at the end of March. The average exposure was 1.01%.
As with Altice France’s downgrade, which was triggered by threats of a haircut for creditors, most CLO managers should be able to cope with Altice International’s downgrade, but it increases vulnerability to further idiosyncratic risk.
“If this is your first or second issue and you have built a lot of par, you can take the losses,” Ian Perrin, associate managing director at Moody’s structured finance group, told GlobalCapital during the Global ABS conference in Barcelona. “But if this is your 10th or 12th problematic name, chances are that you don’t have room anymore.”
'Unsustainable' warning
Altice International’s next refinancing walls are in 2027 and 2028, but Moody’s said recent actions suggest that the company is prioritising paying dividends to shareholders over deleveraging.
In the first quarter of 2024, Altice International used its revolving credit facility to fund a €390m dividend payment to shareholders. The drawdown increased the company’s net reported leverage to 5x Ebitda (around 7x on Moody’s adjusted basis).
The payout was in line with Altice International’s policy of maintaining its leverage between 4.5x-5.0x Ebidta, but Moody’s warned it increased the risk of the company’s capital structure becoming unsustainable.
With higher interest rates and the deterioration of the credit quality of affiliated companies, such as Altice France and Altice US, the rating agency expects Altice International’s access to capital markets will become more expensive.
Moody’s cut Altice International’s long-term corporate family rating and its probability of default rating to Caa1 from B3. It also downgraded the ratings of several debt instruments of Altice Finco and Altice Financing.