Notes:

1. CSC Holdings LLC Revolver capacity is subject to CSC Holdings LLC maintaining net senior secured leverage of not more than 5:1, pro forma any draws.

Recent Events

On 3 May 2024, Debtwire reported that Altice USA is working with Moelis to evaluate options for its capital structure.

On 15 May 2024, Debtwire reported that S&P downgraded Altice USA to CCC+.

On 17 May 2024, Debtwire reported that Moody’s downgraded CSC Holdings, LLC to Caa2.

On 29 May 2024, Debtwire reported that certain Altice USA creditors hired PJT Partners as financial advisor.

On 17 June 2024, Debtwire reported  that a group of Altice USA creditors were nearing a debt cooperation deal.

On 1 July 2024, Debtwire reported that S&P upgraded Cablevision Lightpath to B.

On 3 July 2024, Debtwire reported that a group of Altice USA creditors signed an 18-moth cooperation agreement.

On 12 July 2024, Debtwire reported additional details regarding the previously reported 18-month cooperation agreement.

On 1 August 2024, ATUS reported 2Q24 results before market open. The Company reported USD 2.24bn in revenue versus our estimates for USD 2.23bn and Adjusted EBITDA of USD 867m versus our estimates for USD 838m.  Capex of USD 348m was also below our estimate for USD 413m. ATUS equity traded down as much as ~15% during the 1 August 2024 session and is down ~17% since the release, while credit was generally positive, with the CSC Term B and 1 1/4s of 2028 flat and the 4 5/8s of 2030 up ~3pts.

Financials

ATUS reported revenue of USD 2.24bn for 2Q24, versus USD 2.32bn for 2Q23, driven by small year-over-year declines in Broadband, Video and Telephony, partially offset by small year-over-year increases in Business Services and Wholesale, News and Advertising, Mobile and Other. Total homes passed grew to approximately 9.75m in 2Q24 versus 9.58m in 2Q23. Over the same period, traditional residential Broadband customers declined to 4.09m from 4.23m. Management attributed declines to the ongoing challenging macroeconomic environment as well as reduced activity in the low-income segment with the sunsetting of the ACP. Video customers declined to 2.02m from 2.31m, and Telephony customers declined to 1.39m from 1.64m. The legacy side of ATUS’s business continues a steady decline, driven by now familiar trends: cord cutting, moves to streaming; and moves to wireless telephony. The company’s strategy is continued focus on growing the Fiber-to-the-Home segment. Total passings for this business grew to 2.84m in 2Q24 versus 2.66m in 2Q23. Over the same period, total residential customers grew to 423,000 in 2Q24 versus 246,000 in 2Q23, taking total penetration to 14.9% in 2Q24 versus 9.2% in 2Q23. On the 2Q24 call, management suggested expectations for accelerated migrations in the back-half of CY2024. Residential customer ARPU for 2Q24 was USD 135.95 versus USD 137.44 in 2Q23, but also up slightly from 1Q24’s USD 135.67.

Operating margin excluding restructuring charges for 2Q24 was 20.3% versus 21.0% for 2Q23. Adj. EBITDA for 2Q24 was USD 867m, down from USD 922m in 2Q23 due to declines in revenue over the same period slightly offset by lower operating costs.  Levered free cash flow was USD 25m for 2Q24 versus negative USD 21m for 2Q23, driven by working capital sources in the current period versus uses in the prior year period as well as lower capex in 2Q24 versus the prior year period.

Debtwire estimates for NTM assume sequential quarterly revenue declines of 0.5% and adjusted EBITDA margins flat with 2Q24 results. We have also assumed capex consistent with slightly reduced guidance for FY2024. Finally, we have assumed a USD 24m benefit from working capital, resulting in the expectation for USD 54m levered free cash flow over the NTM period. Management mentioned on the 2Q24 call that they continue to target positive free cash flow for FY24, driven by the expectation for significantly lower cash taxes in 2H24 versus 1H24 levels.

Valuation 

ATUS is currently trading at an LTM EV/EBITDA multiple of 7.3x, versus a peer average of 7.2x. NTME EV/EBITDA multiple is 7.5x, versus a peer average of 7.0x. Total leverage is 7.2x, compared with a peer average of 3.8x. Net leverage is 7.0x, versus a 3.6x average of the peers.

CSC Holdings LLC’s and Cablevision Lightpath LLC’s secured debt and guaranteed bonds appear to be fully covered based on current estimates and offer yields that are generally wide of the indices. CSC Holdings LLC’s unsecured bonds, while potentially impaired, seem potentially undervalued based on valuation expectations. While the Company is also likely very aware of these trading levels, we fail to see a source of proceeds that would make sense for ATUS to use to conduct a regular way discounted purchase of its bonds, leaving some sort of discounted/distressed exchange offer(s) as a higher probability approach going into the 2027 maturities. The company on one hand faces ongoing declines in its legacy businesses, which continue to squeeze cash flow, and on the other, the opportunity to continue the high-cost buildout of Fiber-To-The-Home, which has yet to show the ability to truly recapture losses, all while managing a highly levered capital structure.  Given the totality of the situation, we would not be surprised to wake-up to read headlines of Altice France like actions on the part of ATUS over time.

ATUS’s equity remains low dollar value at USD 1.88 per share and represents a very thin piece of this very large capital structure (approximately 0.2x Adj. EBITDA in total market cap).  While it currently represents option value on potential future growth, a covered call strategy could be a compelling approach in this situation for parties who can stomach volatility.

Notes:

1. Proforma Cash and Cash Equivalents and Secured & Guaranteed debt balances assume full draws of available revolver capacity as of 2Q24.

Overview

Altice USA, Inc. (NYSE: ATUS) provides broadband and video services to customers in the New York metropolitan area as well as certain markets in the south-central United States, primarily under the “Optimum” brand, f/k/a Cablevision. ATUS services customers in a total of 21 states through its traditional fiber-rich hybrid-fiber coaxial broadband network as well as its growing fiber-to-the-home network. Additionally, ATUS offers news programming and advertising services, as well as full-service mobile communications services through a partnership with T-Mobile.