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Altice took out a more than £1bn margin loan against its stake in BT, in a move that underscores the risky borrowing that is now piling pressure on billionaire Patrick Drahi’s sprawling telecoms group.
The Franco-Israeli billionaire’s 24.5 per cent stake in BT was built through substantial loans and derivatives financing, allowing Altice to borrow heavily against the shares, according to people familiar with the situation and loan documents seen by the Financial Times.
The company’s borrowing against its £3.5bn stock position raises questions around whether Drahi can maintain the BT stake for the long term, particularly given that his wider empire is struggling with mounting debts.
Altice borrowed heavily in an era of cheap money to expand from a niche cable company into a global telecoms empire stretching from the US to Portugal. But lenders that extended more than $60bn of debt across its three main business units are now braced for restructuring negotiations, as concerns mount around the impact of both increased interest rates and a criminal probe into one of Altice’s co-founders.
Altice UK, the investment vehicle that is now the largest shareholder in BT, initially built up a stake of 18 per cent in 2021 using so-called funded equity collars from BNP Paribas, Citigroup and Morgan Stanley, according to the people familiar with the arrangement, and documents. This financing technique combines derivatives with bank loans, allowing investors to simultaneously build a stake using borrowed money and hedge their position against a share-price fall.
In January 2022, Altice signed a new margin loan facility with the same three lenders and Deutsche Bank, allowing it to borrow up to £1.5bn against BT shares. Altice then drew down the majority of the loan over the course of the year in order to unwind some of its collar financing.
Margin loans are deemed risky for borrowers because lenders can demand additional collateral — usually in the form of cash — if the underlying shares fall in value.
These margin calls can pile more pressure on investors at times of financial distress. Banks can also seize the shares and sell them if a borrower defaults on the loan.
In contrast, equity collars protect investors against a share-price fall, in exchange for them capping potential returns from a rising stock price.
Altice later used further collar financing to raise its stake in BT to almost 25 per cent in May 2023, according to one of the people familiar with the terms, who added that the group has since repaid a portion of the margin loan.
Altice, BT, BNP Paribas, Citigroup, Deutsche Bank and Morgan Stanley declined to comment.
While Altice is experiencing pressure in debt markets, the four banks behind the BT margin loan are not particularly concerned about their exposure, according to people close to the lenders. This is because the loan is well covered by the value of BT shares — a large and liquid stock that is in the FTSE 100 index.
Drahi owns the majority of Altice’s shares, although in the past he signed complicated side deals to share a chunk of his profits with Armando Pereira, Altice co-founder, who was arrested in Portugal as part of a corruption probe last year.
Pereira has denied any wrongdoing, while Drahi last year said that if the allegations against his longtime business partner were true he felt “betrayed and deceived”.
Altice’s margin loan on BT initially had a loan-to-value ratio of 60 per cent — meaning it had to pledge £100 of stock for every £60 borrowed — and a three-year maturity.
BT’s shares are down nearly a quarter since the loan was taken out, although they rallied after its new chief executive Allison Kirkby outlined her plans to turn around the FTSE 100 company at its annual results in May.
Drahi was also recently joined by another telecom tycoon — Carlos Slim — on BT’s shareholder register; it was disclosed in June that the Mexican billionaire had taken a 3 per cent stake in the UK telecoms group.
When Altice UK raised its stake in BT to almost 25 per cent in May 2023, Drahi’s telecoms investment group said he “continues to hold management in high regard and remains fully supportive of their strategy”.
It reiterated it had no plans to make a bid for the UK telecoms group but said it would reconsider this if a third party announced an offer.
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