Last summer, telecom magnate Patrick Drahi was reassuring investors with personal assurances amidst mounting debt pressures on his company, Altice France. Facing high debt prices, Drahi promised creditors that he would do “whatever it takes” to fulfill his commitments, reminiscent of Mario Draghi’s famous pledge during the euro crisis.
However, this assurance now seems a distant memory as Altice France enters contentious negotiations with disgruntled creditors. The company is seeking to reduce its €10 billion ($10.9 billion) debt burden, but creditors have been warned to expect substantial losses on their investments.
Drahi’s situation reflects a broader trend among European billionaires who accumulated significant debt during the era of low interest rates. While Drahi’s debt-laden approach has led to regret among investors, he is not alone. Irish billionaire Paul Coulson has similarly clashed with creditors, and Italian mogul Andrea Pignataro’s fintech firm has struggled with its private loans, although its public debt remains relatively stable. Meanwhile, the Issa brothers had to renegotiate £3.2 billion ($4.1 billion) of debt for UK grocery chain Asda under unfavorable terms, though they managed to mitigate some investor losses.
The recent turmoil in Europe’s high-yield debt market highlights a shift in sentiment. Historically, the continent’s negative interest rates and central bank bond purchases encouraged investors to engage with higher-risk debt offerings. Now, with the high-yield market contracting since late 2021, there is a noticeable shift away from investing in companies controlled by powerful individuals.
Many investors are expressing reluctance to engage with such companies again. Ben Pakenham of Abrdn remarked that Altice France’s recent actions have rendered it “quasi un-investable,” leading his firm to exit their investments. Similarly, Chris Ellis of AXA noted that while billionaire-backed companies might still attract investment, any future engagement would be scrutinized heavily, especially if the tycoons avoid personal financial contributions during restructuring.
The dissatisfaction with high-profile business leaders is not confined to Drahi. Coulson’s Ardagh Group, for instance, is grappling with high borrowing costs. Pignataro’s fintech firm, ION, has seen rising interest expenses due to floating-rate loans. The Issa brothers face challenges with Asda, which is losing market share and experiencing escalating interest costs.
The broader issue is that many European companies led by dominant shareholders have accumulated excessive debt, making it difficult for creditors to exit without significant losses. With a shrinking pool of high-yield investments, creditors often find themselves stuck between selling at a loss or holding out for a potential recovery.
Private equity firms like Blackstone Inc. and KKR & Co. also face challenges in the high-yield debt market, burdened by rising interest rates. While they have their own issues, they often have more incentive to negotiate constructively with lenders compared to individual tycoons who might be solely focused on protecting their single assets.
Amidst this turmoil, investors are calling for stronger protective covenants in debt deals, which have deteriorated since the easy-money era. The current landscape suggests that bondholders may face more difficult negotiations and potentially unfavorable outcomes as the market continues to evolve.
As Raphael Thuin of Tikehau Capital observes, “When things get dicey, bondholders often get the short straw,” reflecting the growing frustration and caution among investors dealing with tycoon-led ventures in today’s challenging financial environment.
