Altice International - How bad is the smell?

All,

Please find our updated model here.

But does the financials and the model matter? The last comment from the management on the call is probably the most important one stating Altice International is “completely different to France” with “growing Revenue, EBITDA and Operating Free cashflow”. But with the continued distrust amongst the investor base towards all Altice entities, Altice International bonds trade at a significant discount to where the would trade with a different shareholder.

Investment Rationale:

- On a standalone credit basis, Altice International is a buy across the structure, and in particular the Altice International subordinated bonds. The sub-bonds trade at a 20% YTM, and although the leverage has crept up to 5.0x (5.5x on our model including the pension liability) the business will deleverage by 0.5x for the remainder of the year.

- But the reason for the increase in leverage is the main concern. Altice International paid a dividend to Altice Luxembourg of €390m in Q1 and although this is less than prior years and normal to be in Q1, it shows no regard for the current trading levels and the wider investor sentiment.

- At current levels, c.60%, we see limited downside in the sub-bonds, but in the reality of the total mistrust between investors and Altice management, it is difficult to put any firm view on where the actual downside is. Asset coverage, in our view is substantially greater than the current debt levels.

- We maintain our 5% position in the current environment.

They don’t really help themselves:

- Management continue a very confrontational approach to investors, which is typified by their “figure it out yourself” response to questions seeking clarification on the size of the restricted basket and other payment baskets. Even when they reconfirmed their leverage guidance, they were a little noncommittal on what they would do with proceeds of any potential asset sales. They at least acknowledge that they it would be “consistent with leverage target to repay with proceeds”, but would have to review it after any asset sale and reassess if 4.0-4.5x was appropriate depending on what assets they have sold.

- In relation to the entities that Altice International have moved/sold to Altice SFR and/or others, management reassured investors that these entities were empty and unused and of no consequences to Altice International. We probably agree with that statement, but even an additional slide or further details would alleviate some investors’ concerns.

Asset Sales:

- No news is bad news. The process continues on the sale of the Portuguese and TEADs assets but the Company were not able to provide any update.

- Separately, the Company has decided not to pursue the sale of the Dominican Republic assets, with valuations not meeting their own expectations. Altice International are not in a forced sale position and are not required to sell at a discount. Although this is technically correct, and the Company don’t have any immediate maturities, it is hard to imagine Altice International being able to access the public capital markets prior to any refinancing needs. Therefore, we suspect the Company are required to sell down assets in order to meet their maturities. However, the Dominican Republic assets are not going to be the deciding factor. All hinges on the sale or otherwise of Portugal.