Patrick Drahi et la dette, une amitié de 30 ans

Patrick Drahi has his own software. Debt, which scares the average person just by mentioning it, does not frighten him. In fact, he has made it his fuel to reach new heights. Patrick Drahi converted to this mindset in 1991. That year, he borrowed 50,000 francs through a student loan to launch a modest cable network operator. « So I was burdened with debt, » he smiled during a hearing at the National Assembly on May 27, 2015. The current owner of the Altice group, the parent company of SFR and other major operators in Europe and the United States, confidently stated that his situation had « significantly improved » as he had « 32 billion in capital for 33 billion in debt » at that time.

At that moment, Patrick Drahi is feeling quite proud of himself. This son of mathematics professors has been in the spotlight since he acquired SFR, the second largest telecommunications company in France, a year earlier. Few people believed he would succeed. Numericable, his cable network group, was much smaller than the operator with the red square logo. SFR was valued at 15 billion euros while Numericable was worth barely more than 4 billion euros on the stock market, with 2.5 billion euros in debt. However, this did not stop Patrick Drahi from capturing his prey, right under the nose of Bouygues Group, a powerful player in the CAC 40.

Cet énorme coup, Patrick Drahi l’a réalisé grâce à une pratique financière qu’il maîtrise sur le bout des doigts: le leverage buy-out (LBO), ou rachat par effet de levier. Ce montage, qui a connu son âge d’or avant la crise de 2008, consiste à s’endetter massivement pour racheter une entreprise, puis à se servir sur ses profits pour rembourser la somme empruntée et les intérêts. Cette technique, Patrick Drahi, n’a eu de cesse d’y recourir pour assouvir sa boulimie d’acquisitions. Depuis SFR, ce très bon connaisseur des arcanes de la finance a étendu son empire dans les télécoms aux Etats-Unis (avec les câblo-opérateurs Suddenlink et Cablevision) comme en Europe (en rachetant Portugal Telecom, les médias BFMTV et RMC, ou en devenant récemment premier actionnaire de British Telecom). Ce « passionné et amateur d’art », affirme un proche, s’est même offert une incursion dans le luxe en mettant le grappin sur Sotheby’s, la célèbre maison de vente aux enchères, pour près de 4 milliards de dollars ! Désormais, sa dette globale flirte avec les 60 milliards de dollars.

« Conduire la voiture »

This would cause headaches for many entrepreneurs… But not for Patrick Drahi. Debt is, in his eyes, just a tool for his development. According to him, he has not set any limits on this front. His goal is always to « achieve growth, » and certainly not « to reduce his debt, » as he explained during his hearing in 2015 at the National Assembly, leaving the deputies somewhat stunned. If one is « growing, » he emphasized, the objective is « to know what your next avenue of growth will be, and not how to repay your debt. » « If I stop my supposedly voracious development, in five years I will have zero debt. So what? That would be foolish because I would not achieve any growth for five years. It is better to achieve growth while keeping your foot near the accelerator and the brake, while also looking in the rearview mirror, that is to say, driving the car. »

Lever de la dette, beaucoup de dette, a surtout un gros avantage pour Patrick Drahi : cela lui permet d’être propriétaire de son groupe, et seul maître à bord. En clair de se construire un patrimoine, lui qui n’est pas « fils de riche ». Patrick Drahi déplore, par exemple, la situation des entrepreneurs qui, au fil des levées de fonds, se retrouvent minoritaires au capital de leur société, et donc à la merci de leurs investisseurs. C’est ce qu’il a expliqué aux étudiants de Polytechnique, dont il est diplômé, lors d’une conférence le 20 avril 2016. « Combien d’entrepreneurs de la Silicon Valley, pourtant extraordinaires, détiennent leur entreprise dix ans après leur création ? Très peu. Ces entrepreneurs sont très riches, mais avec 2% ou 3% de leur capital, ils ne contrôlent plus leur société. Et si un jour ça ne marche pas très bien, ils peuvent être mis dehors. » En définitive, s’endetter constitue « la seule façon de développer un groupe à très grande vitesse tout en contrôlant son capital », défend Patrick Drahi.

In recent years, Altice has become known for its fast execution speed. Patrick Drahi has a unique ability to attract banks and large investment funds and convince them to invest billions of euros in his high-risk, high-yield market bonds. Drahi has been greatly aided in his pursuit of success by the low interest rate policy implemented by the European Central Bank (ECB) and its president, Mario Draghi, between 2011 and 2019. Altice has benefited greatly from this « cheap money » at a time when many funds were looking for significant opportunities to invest their large amounts of cash. In 2015, Drahi stated, « We cannot be blamed for taking advantage of low interest rates! »

SFR is facing tough competition.

Except that today, the party is over. The ECB has tightened its monetary policy, and interest rates are rising in Europe and elsewhere in the world. On September 14th, the institution raised its benchmark rate to 4%, the highest level in its history. This has consequences for Altice: borrowing or refinancing its debt (by issuing new bonds to buy back the previous ones and extend its repayment deadlines) is becoming more expensive. Moreover, Altice France, the parent company of SFR, is once again the « sick man » of the French telecoms industry. Its situation is critical. Since the beginning of the year, the operator with over 20 million loyal customers has turned into a « universal donor » of clients to the competition, mocks a competitor. In just the second quarter alone, the operator lost 29,000 fixed internet subscribers, and most importantly, 135,000 mobile customers.

These commercial leaks are weighing on the operating result and have put Altice France in the red zone, according to financial experts. The company’s debt has increased to nearly 24 billion euros. As of the end of June, its debt-to-EBITDA ratio reached 6.3 times, which is significantly higher than its competitors and a significant increase from 3.8 in 2019. This has caused concern among investors who fear that the decrease in profits will hinder Altice’s ability to repay its debts, especially with a large repayment of 1.6 billion euros due in 2025. In late July, Altice France Holding SA’s bond, which matures in 2027 with an 8% coupon, dropped below 50% of its face value. « If someone is willing to sell at that level, it means they think it might go to zero, » said Gilles Frisch, Head of High Yield Management at Meeschaert Asset Management.

Some believe that Patrick Drahi has gone too far in terms of acquisitions. Benoit Soler, a high yield portfolio manager at Keren Finance, asserts that his increase in stake in BT, the British telecom giant of which he owns 24.5% since mid-May, was the deal that pushed things over the edge. « For us, it was the tipping point, » he rages. « Going to buy BT by pulling cash from assets below, distorting them and reducing our ability to recover, that’s over! » he adds.

Scandale de corruption

Alongside its commercial and financial problems, Altice has become embroiled in a vast corruption scandal. Since July 13th, the Portuguese justice system has suspected Armando Pereira, a partner and longtime companion of Patrick Drahi, as well as several executives of the group, of imposing a network of dubious suppliers in different Altice subsidiaries and improperly extracting significant sums of money. Several leaders of the group on both sides of the Atlantic have been removed from their positions. Altice also claims to have stopped working with the suppliers in question. However, this is a harsh blow for Patrick Drahi. He feels « betrayed » by Armando Pereira, who for years acted as a cost-killer in several Altice subsidiaries, particularly in France.

In this context, Patrick Drahi, who is usually discreet and avoids the media, has been forced to come forward. Since the end of August, he has been speaking to investors to put out the fire and reassure them about his debts. He has promised to significantly reduce the debt of his group, no matter the cost. During a conference in London at the beginning of the month, he even mentioned being willing to open up the capital of SFR – even if it means selling it completely – to generate cash. This is a turning point for Patrick Drahi, who has long boasted about never selling anything.

However, the businessman aims to find « approximately 3 billion euros » to reduce his debt, as well as extend his repayment deadlines, particularly the one in 2025, through new bond issuances. « If Altice France manages to achieve a debt/Ebitda ratio of around 3 or 4, it will be very good, and the group will be reputable again.Benoit Soler« Il y a indéniablement un excès de dettes. Il est nécessaire de la diminuer, mais certainement pas de 20 milliards d’euros. »

Altice, un géant aux pieds d’argile

This is not the first time that Patrick Drahi finds himself in a difficult situation. He is familiar with debt burdens… In 2017-2018, there was already a decline in SFR’s results, facing a loss of customers, which ignited the crisis and caused a sharp drop in Altice’s stock. To reassure his creditors, Patrick Drahi had already promised to sell assets and reduce his group’s debt. The same happened in 2011-2012, when Numericable was « an asset in a very difficult situation, with its survival at stake, » recalls Gilles Frisch. « Financing had to be found to restructure the debt and give the company enough time to recover. At that time, it issued bonds maturing in 2019 with a coupon rate of nearly 12.4%, which was enormous, at a price of 97 euros, resulting in a total financing cost of around 13% per year. » In short, history repeats itself. And it will likely repeat again considering the enormous repayments that await Altice France in the coming years: over 5.4 billion euros in 2027, nearly 9 billion euros in 2028, and another 6.3 billion euros in 2029…

By choosing to accumulate massive debt, Patrick Drahi and his group are constantly on thin ice. His creditors tremble at the slightest commercial setback. This instability in which the telecom tycoon has settled, but which has made him a billionaire, is regularly denounced by a large portion of the political sphere. In the eyes of the left, Patrick Drahi, who lives in Switzerland and whose companies are based in Luxembourg, ticks all the boxes of the financialization of the economy’s excesses. This was evidenced by a jab from socialist senator David Assouline during a hearing at the Senate on February 2, 2022: « You are not exactly known for building your businesses and taking possession of what you buy without massive social plans! » The parliamentarian was indirectly pointing out that leveraged buyouts often result in significant layoffs. Trimming the workforce helps boost profitability and therefore generate more cash to pay off debts. In 2017, SFR significantly reduced its workforce, parting ways with 5,000 employees, which accounted for a third of its workforce.

Patrick Drahi, on the other hand, disregards criticism and what people may say. Does his image as a financier who thrives on debt displease some in France? During a Senate hearing in 2016, he boldly asserts that « in fact, the world of finance is a good world because many French people work in it. » The question remains whether this « good world » is still willing to extend him credit, and for how long.

Pierre Manière

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