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Altice USA, the US telecoms affiliate of billionaire Patrick Drahi’s empire, has sued creditors holding the bulk of its $26bn debt, accusing them of illegally colluding in an attempt to force the company into bankruptcy.
The lawsuit, brought in Manhattan federal court, marks the latest escalation of tactics in the fraught area of distressed debt litigation, where companies, hedge funds and other asset managers battle for control of businesses through the legal system.
Legal fights over debt terms have traditionally centred on either contract law or securities law, with experts divided on whether competition claims could be used to resolve these kinds of commercial disputes.
The Altice USA action is the second case to test the limits of competition law in as many months, and the first instance of a company alleging creditors violated US antitrust law in a debt restructuring.
It follows a similar competition lawsuit filed last month, where a dissident group of bondholders of Swiss company Selecta, sued another group of similarly situated bondholders over a debt swap pact that the dissidents were not allowed to join.
Drahi had pursued an aggressive mergers and acquisitions strategy to build a US pay-TV and broadband empire, but the resulting debt load proved unsustainable amid flagging subscriber numbers. The company’s market capitalisation has shrivelled to less than $1bn, while it lumbered under a $26bn debt load.
According to the legal complaint, almost all the holders of the debt of Altice USA had joined a so-called co-operative that blocked any member from directly negotiating a debt exchange or refinancing with company management.
Instead, a committee, whose members included the likes of Apollo, Ares, BlackRock, JPMorgan, Oaktree and Prudential, was empowered as the single entity authorised to interact with Altice USA. Altice USA has recently renamed itself Optimum Communications.
“[T]he Cooperative, by its own admission, restrains [Altice USA] from engaging in transactions at the prevailing market price. The Cooperative is a classic illegal cartel,” Altice USA said in the lawsuit.
So-called co-operation agreements, where creditors in similar positions agree to negotiate restructuring deals as a collective, have emerged in recent years as a way to stop troubled companies from picking off individual lenders or bondholders to raise new capital.
Such deals — dubbed “creditor-on-creditor violence” — often left lenders or bondholders out of the group holding debt that was close to worthless, having been pushed towards the bottom of the capital stack.
Altice USA argued in its lawsuit that these types of agreements — known as “non-pro rata” deals — ultimately improved efficiency even if some creditors were hurt. “Creditor-on-creditor violence . . . is just a pejorative term for competition,” it said.
Altice USA said it had been forced to complete a more costly and complex $1bn capital raising this summer because it had been unable to work with existing lenders and bondholders. The deal came with an interest rate that was 2-3 percentage points higher than if the company had been able to work with its existing counterparties, Altice USA claimed in the lawsuit.
The company warned that lawyers and bankers were becoming increasingly aggressive in pitching and structuring co-operation agreements.
“Left unabated, similar co-operation agreements will become standard operating procedure for creditors — spurred on by advisers like PJT Partners and Akin Gump [advisers to the Altice USA creditors] who, in pursuit of lucrative business opportunities, organise and promote such agreements,” Altice USA wrote.
Lawyers for the creditor group at Akin Gump did not immediately respond to a request for comment.
Altice USA separately announced on Tuesday that JPMorgan had lent it $2bn to repay an existing loan, a deal that includes shifting valuable collateral away from existing creditors.
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