Moody’s cuts Altice France’s rating and puts collateralized bonds at risk

Moody’s Ratings has lowered Altice France Holding’s credit rating to one of its lowest levels, which threatens to wreak havoc on the collateralized loan obligations that hold the company’s debt.

CLOs, a crucial buyer of leveraged loans, have strict limits on how much of the riskiest subprime debt they can hold and may seek to get rid of the debt quickly, according to Bloomberg.

Note that CLOs are a form of securitization in which payments on multiple loans to medium and large companies are bundled into multiple tranches and sold to multiple classes of investors.

The CLO can be made up of mortgages, fixed income securities or even bank credit operations. Being a structured product, it essentially aims to sell a “package” of payment flows.

The financial rating agency Moody’s cut Altice France’s credit rating from B3 to Caa2, leaving it just three steps above the “C” rating, which classifies companies in default and whose debt has low recovery prospects.

The rating cut occurred this Wednesday, days after management suggested to creditors that debt forgiveness will be necessary to help the company meet a more ambitious debt reduction target.

The Caa2 rating assigned on Wednesday, March 28, to Altice’s subsidiary for the French business refers to companies whose obligations “are subject to very high risk credit”, according to Moody’s rating table.

Altice France Holding’s two-level downgrade from B3 to Caa2 follows Altice France’s recent earnings announcement, in which the company said it expected revenue to decline and would need creditors to participate in discounted transactions to help its reduce leverage, Moody’s analysts wrote in a note on Wednesday.

The company still has a superior B- rating from S&P Global Ratings.

Moody’s stated that the rating downgrade reflects the company’s unsustainable capital structure, due to its high leverage and weak free cash-flow, particularly in a high interest rate environment, as well as the competitive nature of the French market, the complexity of the group’s structure and its high appetite for leverage, and its weak liquidity as a result of large financing needs from 2025 onwards.

“The probability of the company defaulting has increased materially, given that its capital structure is unsustainable at current interest rates,” Ernesto Bisagno, vice president of Moody’s Ratings, wrote in the note. The company’s “operating performance and credit metrics will be weaker than we initially expected.”

According to Reuters, Altice France Holding’s debt rating was cut from “B3” to “Caa2”, a two-notch drop that puts the company just three steps above the bottom of Moody’s rating table.

The outlook is negative, a sign that the agency will keep an eye on Altice and may lower its financial rating again.