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Altice took out a greater than £1bn margin mortgage in opposition to its stake in BT, in a transfer that underscores the dangerous borrowing that’s now piling strain on billionaire Patrick Drahi’s sprawling telecoms group.
The Franco-Israeli billionaire’s 24.5 per cent stake in BT was constructed by means of substantial loans and derivatives financing, permitting Altice to borrow closely in opposition to the shares, in keeping with individuals conversant in the scenario and mortgage paperwork seen by the Monetary Occasions.
The corporate’s borrowing in opposition to its £3.5bn inventory place raises questions round whether or not Drahi can preserve the BT stake for the long run, notably on condition that his wider empire is scuffling with mounting money owed.
Altice borrowed closely in an period of low cost cash to increase from a distinct segment cable firm into a worldwide telecoms empire stretching from the US to Portugal. However lenders that prolonged greater than $60bn of debt throughout its three major enterprise items are actually braced for restructuring negotiations, as considerations mount across the influence of each elevated rates of interest and a prison probe into one among Altice’s co-founders.
Altice UK, the funding car that’s now the biggest shareholder in BT, initially constructed up a stake of 18 per cent in 2021 utilizing so-called funded fairness collars from BNP Paribas, Citigroup and Morgan Stanley, in keeping with the individuals conversant in the association, and paperwork. This financing approach combines derivatives with financial institution loans, permitting buyers to concurrently construct a stake utilizing borrowed cash and hedge their place in opposition to a share-price fall.
In January 2022, Altice signed a brand new margin mortgage facility with the identical three lenders and Deutsche Financial institution, permitting it to borrow as much as £1.5bn in opposition to BT shares. Altice then drew down the vast majority of the mortgage over the course of the 12 months with the intention to unwind a few of its collar financing.
Margin loans are deemed dangerous for debtors as a result of lenders can demand further collateral — normally within the type of money — if the underlying shares fall in worth.
These margin calls can pile extra strain on buyers at instances of economic misery. Banks may also seize the shares and promote them if a borrower defaults on the mortgage.
In distinction, fairness collars defend buyers in opposition to a share-price fall, in alternate for them capping potential returns from a rising inventory value.
Altice later used additional collar financing to boost its stake in BT to nearly 25 per cent in Could 2023, in keeping with one of many individuals conversant in the phrases, who added that the group has since repaid a portion of the margin mortgage.
Altice, BT, BNP Paribas, Citigroup, Deutsche Financial institution and Morgan Stanley declined to remark.
Whereas Altice is experiencing strain in debt markets, the 4 banks behind the BT margin mortgage usually are not notably involved about their publicity, in keeping with individuals near the lenders. It is because the mortgage is properly lined by the worth of BT shares — a big and liquid inventory that’s within the FTSE 100 index.
Drahi owns the vast majority of Altice’s shares, though previously he signed difficult aspect offers to share a bit of his income with Armando Pereira, Altice co-founder, who was arrested in Portugal as a part of a corruption probe final 12 months.
Pereira has denied any wrongdoing, whereas Drahi final 12 months mentioned that if the allegations in opposition to his longtime enterprise companion had been true he felt “betrayed and deceived”.
Altice’s margin mortgage on BT initially had a loan-to-value ratio of 60 per cent — that means it needed to pledge £100 of inventory for each £60 borrowed — and a three-year maturity.
BT’s shares are down practically 1 / 4 for the reason that mortgage was taken out, though they rallied after its new chief government Allison Kirkby outlined her plans to show across the FTSE 100 firm at its annual leads to Could.
Drahi was additionally lately joined by one other telecom tycoon — Carlos Slim — on BT’s shareholder register; it was disclosed in June that the Mexican billionaire had taken a 3 per cent stake within the UK telecoms group.
When Altice UK raised its stake in BT to nearly 25 per cent in Could 2023, Drahi’s telecoms funding group mentioned he “continues to carry administration in excessive regard and stays absolutely supportive of their technique”.
It reiterated it had no plans to make a bid for the UK telecoms group however mentioned it could rethink this if a 3rd get together introduced a suggestion.