Altice International - tainted by association

All,

Please find our updated model here.

Altice International reported its Q4 and FY23 numbers which were broadly in line with our expectations. The business continues to show its resilience and stability and is reasonably easy to model on an operational basis. We had expected trading levels of the debt to be influenced by the potential for asset sales, and what level of dividends is likely to be extracted by Altice Luxembourg SA (Holdco) and/or the make-up of the capital structure post any divestment of one of the assets. However, in the short term the contagion from Altice SFR is weighing on the name.

Investment Rationale:

- There is more than a little frustration here as timing is everything in the market. We had already drafted an email outlining our exit from the position when unfortunately comments from Altice SFR management have caused contagion across to Altice International. At 73%, we feel reluctant to exit and will continue to monitor the name and wait for a better exit point than right after the news have broken.

- We had originally maintained our 3% long position in the sub-bonds in Altice International that we initially took in November 2022 at 73%, despite the noise surrounding the “fraud” in Portugal over the summer. In fact, we increased our position to 5% at 65% in mid-August, as we viewed Altice International was more "sinned against than sinning”. However, the time has come to exit the position.

- It is correct to state that, in line with our original thesis, International is the stronger of the two Altice entities, taking comfort from the fact that the underlying business provides deleveraging. However, we have grown more concerned about the potential for a large dividend (or loan to Altice SFR) extracting cash from International while Drahi and Altice Luxembourg SA seek to resolve the over-leverage at Altice SFR.

- We acknowledge that the Finco (sub) bonds are relatively small in size versus the overall structure, the asset coverage is more than sufficient to cover debt levels and are probably likely to be repaid in full at maturity. However, we can envisage a scenario where only Altice Portugal is sold and the remaining business (essentially Emerging market) retains leverage of 4.0 -4.5x.

- Therefore, we were going to exit the bonds at 87.5% or 9% yield. However, at current prices (73% mid) we are holding our position.