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CLO Brief: Limited Repercussions From Altice Downgrade

This report does not constitute a rating action.

The downgrade of Altice International S.à r.l will not affect European collateralized loan obligations (CLOs) materially. Even though Altice International is among the largest individual issuers of debt to rated European CLOs, the downgrade is unlikely to have significant knock-on effects on CLOs. This is because CLOs have no forced-sale mechanism that requires them to sell the downgraded assets and realize the losses. All else being equal, even another downgrade of Altice International or the group's default would have limited effects on the performance of most CLOs.

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What's Happening

On Feb. 7, 2025, we downgraded Altice International to 'CCC+' from 'B-' due to weaker-than-expected results for 2024 and the increased risk of a distressed exchange.

Why It Matters

Altice Europe N.V. debt features in 77% of the European CLOs we rate, including 262 CLOs that hold Altice Financing S.A. instruments and 92 that hold Altice Finco S.A. debt. European CLOs' total exposure to Altice Financing and Altice Finco amounts to €959 million and is spread across 262 CLOs, with some CLOs holding debt from both issuers. The median exposure is about €3.2 million, while the maximum is just over €10.13 million. European CLOs' exposure to Altice International decreased by €200 million over the past 12 months.

The downgrade of Altice International has increased European CLOs' exposure to assets that are rated in the 'CCC' category by almost 20%. Altice France and Altice International represent 30% of rated European CLOs 'CCC' buckets, which now amount to close to €6 billion, from €5 billion previously. CLOs' exposure to Altice International has decreased by almost €200 million since February 2024, in particular after we had downgraded Altice France to 'CCC+' from 'B-' in April 2024.

Effect of the downgrade of Altice International on collateralized loan obligations (CLOs)
Pre-downgrade Post-downgrade
Number of CLOs breaching the 7.5% 'CCC' threshold (out of 386 CLOs as of Feb. 10, 2025) 11 15
Amortizing CLO breaching the 7.5% 'CCC' threshold (%) 13.58 16.05
Maximum 'CCC' bucket out of 81 amortizing CLOs as of Feb. 10, 2025 (%) 16.37 19.20
Reinvesting CLO breaching the 7.5% 'CCC' threshold (%) 0 0.66
Maximum 'CCC' bucket out of 305 reinvesting CLOs as of Feb. 10, 2025 (%) 6.99 7.91
Source: S&P Global Ratings.

What Comes Next

'CCC' assets will increase over the short term. Accordingly, CLO coverage test cushions are likely to decrease but unlikely to result in a breach of coverage tests and a diversion of cash flows in the waterfall. We note that a typical post-reinvestment condition was that the 'CCC' bucket must not exceed 7.5%, which could impair some CLOs' ability to reinvest. That said, this condition has not always applied in recent deals.

Over the medium term, we expect some CLOs will adopt a risk-off posture. Several CLOs have started to reduce their exposure to Altice International in February 2024 and will likely continue to do so. 40% of CLOs that closed in 2024 did not have any exposure to Altice International. If Altice International defaulted, several European CLOs--all else being equal--would breach junior coverage tests over the long term.

Related Research

Primary Contact:Emanuele Tamburrano, London 44-20-7176-3825;
emanuele.tamburrano@spglobal.com
Secondary Contact:Shane Ryan, London 44-20-7176-3461;
shane.ryan@spglobal.com

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