There is currently a lot of news circulating about the financial troubles of two of the largest cable companies. Both Optimum (formerly Altice USA) and Cable One are in distress.
Optimum is in financial distress because of its $26 billion in total debt, which includes payments coming due in 2027 of $6 billion. While the company is profitable, it’s not nearly profitable enough to meet the debt payments. Altice’s debt comes from the money the company spent to buy two other cable companies; Altice bought Cablevision in 2016 for $17.7 billion. The company bought Suddenlink in 2022 for $9.1 billion. These transactions were highly leveraged with debt. The company has been hemorrhaging broadband customers and has lost over 580,000 customers since the end of 2022. The company’s stock has plummeted over time. Five years ago, the stock traded at more than $28 per share. As I’m writing this blog, the share price was $0.65.
The company is being prohibited from restructuring the debt due to a group of current Optimum lenders, including Ares Management, Apollo Global Management, and BlackRock, which banded together and have an agreement that will not allow Optimum to restructure debt without supermajority approval from the lenders. Optimum claims this is illegal price fixing and sued the major investors. Optimum founder Patrick Drahi also tried an end run and created a new subsidiary to try to house key assets (such as Optimum East Cable and a stake in Lightpath) outside of existing lenders’ reach, which led to more lawsuits. It was just reported that the company and the lenders are close to a debt restructuring deal that would essentially hand control of the company to its lenders and would end all litigation.
Cable One is facing severe financial trouble primarily due to a contentious legal battle with CoBank ACB, its primary lender. In 2020, Cable One bought a 45% minority share of Vyve Broadband through the Vyve parent Mega Broadband Investments. The original purchase gave MBI, and its equity investor GTCR, the right to force Cable One to buy the rest of the company, and that right was exercised in January of this year. The forced purchase would have given $480 million to MBI owners and absorbed roughly $845 million of MBI debt.
CoBank already holds $1.1 billion of Cable One debt and filed a federal lawsuit in the Southern District of New York to secure a temporary restraining order halting Cable One’s $480 million payment to private equity firm GTCR for the remaining 55% of MBI. A federal judge recently agreed with CoBank and blocked the transaction.
CoBank says that Cable One is currently insolvent under standard valuation methods, citing a massive reported annual net loss of around $1.16 billion, and heavy liabilities relative to its asset base. Cable One disputes that claim. A year ago, Cable One’s stock price was over $165 per share, and was trading at less than $6 per share as I write this blog.
It’s always hard to predict the future for companies in financial peril. Both cable companies are performing poorly in the new competitive world and are continuously losing customers. No bigger ISP is going to be willing to absorb the current debt of either company, and at some point the debt will have to be restructured. In the past, we saw a bankrupt fiber provider like Frontier successfully make it through the restructuring process, but it’s a lot harder to see an easy path for these cable companies.