Tech

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

(Updated )

When billionaire Patrick Drahi spoke to students at France's top engineering school on Wednesday night in Paris, he urged them to take risks to achieve their dreams as he had in building his telecom and cable empire Altice.

Joking that even before he'd graduated he'd paid for his first car and house all on credit, he said there was no point worrying about failure since the bank could always just repossess the stuff and at least he would've enjoyed the adventure.

That comfort with taking on huge amounts of debt persists to this day. At the same time in New York, bankers working for Drahi were wrapping up a third refinancing package that's seen Altice raise $12 billion in high-yield bonds and loans -- yes, you read that correctly -- in about two weeks.

Unless Drahi decides to do the same at U.S. unit Cablevision once the purchase is finalized in a few months, Altice has finished all the refinancing work it had planned for 2016.

Open for Business
A rally in U.S. high-yield bond spreads since February created a refinancing opportunity for Altice
Source: Bank of America Merrill Lynch

The figures are pretty overwhelming. First, Altice refinanced $5.19 billion at its biggest unit France's Numericable-SFR in the biggest junk bond ever sold in a single slug. The offer was more than three times oversubscribed so Altice pressed ahead with a similar $2.75 billion issue at the part of the company that holds Portugal Telecom, followed by a $1.5 billion deal at the most recently acquired business, U.S. cable operator Suddenlink.

The goal of all this frenzied activity is simply to minimize risk by pushing back debt maturities, even though that will produce slightly higher borrowing costs. 

Altice's Suddenlink Buys Time With Bonds
The unit has extended its average maturity while accepting a small pickup in its cost of debt
Source: Altice

As Gadfly has pointed out, Drahi is following the playbook set by fellow billionaire John Malone's Liberty Global a decade ago. Altice's acquisition spree will push its debt load to 50 billion euros ($56.9 billion) once the most recent deal for New York-based Cablevision closes, or about 6 times Ebitda. That's far higher than more traditional telecom companies, which usually carry leverage of 2 to 3 times Ebitda.

So again like Liberty, Altice has to actively manage its debt to guard against a swoon in the high-yield markets, as happened earlier this year. It has also borrowed Liberty's technique of spreading debt across national subsidiaries and parent companies so as to contain risk. 

But Drahi's put a riskier spin on Malone's approach. Altice is pushing leverage ratios even higher than the 5.6 times seen at Liberty. And it has layered on debt at the holding company level, something Liberty doesn’t allow because of the risks associated with with sticking a load of obligations onto a unit that doesn't generate cash.

Finance costs are significant in the Altice model: they hit 1.2 billion euros last year versus 3.1 billion euros spent on capital expenditures on its networks. And they're set to rise to about 3 billion euros annually once the effect of recent deals is felt. Most telecom companies don't have to pay out so much to service their debt, so can dedicate more fire power to network upgrades, dividends, or other things.  

With the debt deals out of the way, Altice now has get down to the real work: nursing its operations in France and Portugal back to growth, while embarking on a high-risk, high reward expansion in the United States. It won't be easy. With the death of a deal to consolidate with other telecom operators in France, Altice's most important business, Numericable-SFR, faces a painful 18 months of turnaround and network investments to catch up with rivals.

Although he's excelled at cost-cutting, Drahi still has to prove that he can improve the businesses he's bought if he's to match Malone's empire building. 

But at least his refinancing on a grand scale gives more evidence that he's up to the challenge. And it sounds like if you'd known him as a young engineering student 30 years ago,  you wouldn't be too surprised by his audacity.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net