NEW YORK: For the past two years, some restructuring and finance lawyers have been telling anyone who would listen – at dinners, client meetings and on conference stages – that creditors were skirting antitrust laws by banding together in so-called cooperation agreements.
On Tuesday, Altice USA finally put that warning to the test.
The US unit of billionaire Patrick Drahi’s telecommunications empire sued lenders including Apollo Capital Management LP, Ares Management LLC and BlackRock Financial Management Inc, alleging they had formed an “illegal cartel” that froze the company out of the US credit market.
The lawsuit, the first of this kind to be brought by a borrower, thrusts the legality of these pacts into the spotlight.
Designed to give bond and loan holders more leverage by negotiating as a bloc rather than individually, cooperation agreements have proliferated in recent years as investors sought to shore up bargaining power amid weaker lender protections.
Any outcome in favour of the telecommunications company could ripple across the world of out-of-court restructurings.
Altice USA – which recently rebranded as Optimum Communications Inc – has been struggling under a heavy debt load and brought on advisers to evaluate its options, Bloomberg reported in May last year.
Soon after, a group of its creditors sought their own counsel amid worries that the troubled borrower would move to restructure its US$26bil in obligations.
Bloomberg reported in June 2024 that a pool of lenders was preparing to sign a cooperation agreement out of concern that the company might shift assets beyond their reach.
Kellogg, Hansen, Todd, Figel & Frederick, a law firm known for its antitrust expertise, is the architect behind the lawsuit and has been advising Altice USA for months on the cooperation agreement matter.
Altice USA then brought on law firm Kirkland & Ellis and investment bank Evercore Inc to advise on the capital structure reshuffling.
Creditor collusion
“This cooperative is an especially bad case in an epidemic of creditor collusion that has swept across the market in recent years,” lawyers for Optimum wrote in the complaint.
“Dozens of creditor groups – often comprising the same institutions, aided by the same advisers – have executed similar cooperation agreements to snuff out competition for other borrowers’ debt.”
“Those cooperatives violate the antitrust laws as well. But this cooperative is, to Optimum’s knowledge, the largest of them all.”
PJT Partners and Akin Gump Strauss Hauer & Feld, who are advising the creditor group being sued, said on a call with lenders Wednesday morning that the lawsuit has no merit.
Among their arguments were that Altice USA hasn’t suffered the requisite harm to plead a claim based on the advisers’ definition of antitrust, according to sources.
About 400 people attended the call, the sources said.
Optimum didn’t respond to requests for comment, but in a public statement said the lawsuit is “intended to protect our legal rights and enhance our financial flexibility moving forward.”
A representative for Kellogg Hansen declined to comment, while messages left with Kirkland were not immediately returned.
A representative for PJT Partners declined to comment.
Representatives for Akin Gump, Ares and BlackRock didn’t immediately respond to requests for comment.
Other defendants
Other defendants listed in the case include JPMorgan Investment Management Inc. and Oaktree Capital Management, which both declined to comment.
Defendants Loomis, Sayles & Company, PGIM Inc. and GoldenTree Asset Management didn’t immediately respond.
The cooperation agreement among Altice USA’s creditors binds holders of roughly 99% of the company’s bonds and loans, and applies not only to current participants but also to any investors they later sell to, according to the suit.
Earlier this year, Kirkland debt-finance partner David Nemecek – who represents companies and their owners in some of the market’s largest debt overhauls – warned that such pacts could run afoul of antitrust law.
“People who enter into cooperation agreements should be careful,” Nemecek said at the Bloomberg Global Credit Forum in June.
“There are serious legal considerations that they should be aware of, including the potential for antitrust claims,” he pointed out.
Whether those claims will ultimately succeed remains unclear.
“I suspect the argument that a cooperation agreement violates antitrust law has a low probability of success,” said Samir Parikh, a law professor at Wake Forest School of Law.
“Creditors do not further an anti-competitive purpose or effect when engaging in concerted activities to protect rights,” he said.
Cooperation agreements have featured prominently in several major US corporate debt restructurings, from Bausch Health Cos to WW International Inc, the parent of WeightWatchers.
They’ve become a staple of liability-management exercises, out-of-court maneuvers that let companies reshape their capital structures, often by exploiting differences among creditors.
Imposing limits
The pacts require lenders to act as a unified bloc in pursuit of better terms, but they also impose limits that can strain the group when members’ goals or return targets diverge.
The size of these creditor groups varies by deal: Sometimes a bare majority is enough, while other agreements rope in far larger coalitions.
And in a shift from past practice, lenders are now striking these arrangements at the first sign of trouble, rather than waiting for a company to formally signal plans to extend maturities or raise new debt.
While Altice USA is the first debtor to mount an antitrust challenge to a cooperation agreement, there is a recent parallel from the creditor side.
Last month, a group of lenders to Selecta sued the vending-machine company and several of its bondholders, arguing that the restructuring deal the firm struck earlier this year violated US antitrust laws by favouring certain creditors over others. -— Bloomberg
