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Patrick Drahi’s indebted US cable company has shifted its most valuable pay-TV and broadband assets outside the reach of creditors, an aggressive move likely to inflame tensions with some of Wall Street’s biggest asset managers.
The manoeuvre is the latest escalation of a bitter fight between the billionaire’s US vehicle Optimum Communications and creditors including Apollo, Ares, Oaktree and BlackRock, as Optimum seeks to restructure its $25bn debt pile.
Drahi’s group, which was previously known as Altice USA, said the transfers were intended to hasten a settlement. But the group acknowledged the moves would “mitigate the potential adverse impact that failing to achieve such a resolution could otherwise have” on Drahi and other shareholders.
Advisers to creditors were set to receive a full briefing on the latest transactions instigated on Monday, and may yet seek to challenge the legality of the transfers.
The Optimum debt fight has already been among the most contentious in recent history. Last year, the company sued some of its largest creditors, alleging they were operating a “classic illegal cartel” in banding together to prevent it striking deals with individual creditors — where some creditors typically secure preferential deals at the expense of others.
A New York federal judge is at present considering a motion brought by the creditors to dismiss Optimum’s case.
The latest moves follow a similar playbook to that employed by Drahi at his global business, Altice International. The billionaire settled another debt fight cooperatively last year at Altice France.
Under the transactions announced on Monday, Optimum has transferred assets that generate about $2bn a year of cash flow to a newly created entity, known as an “unrestricted holdco”, even as the pre-existing group grapples with $6bn of debt due next year.
Those transfers cover Cablevision assets bought from the Dolan family in 2016, which operate across New York, Connecticut, New Jersey and Pennsylvania. The Cablevision acquisition and other deals left Optimum with an unsustainable debt load at a time when cable television subscriptions were quickly declining.
The new entity has raised $3bn of senior debt from JPMorgan Chase and $300mn of junior preferred equity from investors outside the existing Optimum creditor group.
It will use those funds to back a tender offer for about a third of Optimum shares at $2.50 a share — almost four times where its shares closed on Friday. Based on Friday’s closing price, the company’s equity was worth just above $200mn. As part of the deal, Drahi and other executives will swap some of their Optimum shares for preferred stock in the new entity worth $200mn.
A person familiar with the negotiations said the hope was that Monday’s transactions had pushed creditors towards a debt-for-equity swap at a price below the face value of Optimum’s debt. A deal could still be struck at above the 55-to-60 cents on the dollar level where the debt was trading at present, the person added.
Optimum said a consensual deal with creditors would avoid a $4bn tax liability it claimed would arise if creditors formally foreclosed on its assets after a default.
