Bondholders Rocked by $4 Billion Tax Threat in Optimum Feud

Patrick Drahi was running out of options to save his debt-ridden telecom empire.

Creditors had closed ranks under a cooperation pact, making it difficult for Optimum Communications to raise cash, and some had begun weighing whether to push the company, and its $26 billion debt load, into bankruptcy.

Then, Drahi’s camp uncovered a new source of leverage they had on them: taxes. On June 1, the company told creditors that if they forced the issue, they risked triggering more than $4 billion of tax liabilities, a potential massive blow to their recoveries. The warning, part of a broader restructuring ...