Obbligazioni societarie HIGH YIELD e oltre, verso frontiere inesplorate - Vol. 2
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Rating Action: Moody's downgrades Telecom Italia's ratings to Ba3; outlook negative
08 Mar 2022
Milan, March 08, 2022 -- Moody's Investors Service ("Moody's") has today downgraded the corporate family rating (CFR) and the ratings of all senior unsecured debt instruments issued (or guaranteed) by Telecom Italia S.p.A. ("Telecom Italia", "the company" or "the group") and its subsidiaries to Ba3/(P)Ba3 from Ba2/(P)Ba2. Concurrently, Moody's has downgraded to Ba3-PD from Ba2-PD the company's probability of default rating (PDR). The outlook for the entities remains negative.
Today's action follows the reporting of Telecom Italia's 2021 results, which showed a significant reduction in organic EBITDA by 21.9% in the fourth quarter (-9.6% for the full year), due to weak domestic operations partially offset by steady contribution from Brazil, and the announcement [1] of the new 2022-2024 plan, with an additional EBITDA decline in the low teens in percentage terms in 2022, and an expected recovery afterwards, implying a flat compound annual growth rate over 2021-2024.
The company also said it is exploring the separation of its wholesale operations, mostly including the primary and secondary networks, from the retail activities, mainly focusing on consumer and enterprise customers. The company outlined the benefits associated with the so-called delayering of its operations, as the entities operating independently would increase their strategic focus, while gaining some regulatory relief and benefiting from a more efficient capital allocation. The process would take 12-18 months to complete with more details around the capital structure of each entity to be provided later in 2022.
Despite the potential for a network separation, Telecom Italia's rating considers the company's current perimeter and configuration and factors in the evolution of the credit metrics based on the guidance for the group as a whole. However, should the company proceed with the delayering strategy, Moody's would assess its implications on the business model of each entity, as well as the future financial profile including the deleveraging trajectory and potential to generate free cash flow. This could ultimately lead to a different rating outcome.
"The downgrade of Telecom Italia's ratings reflects the company's much weaker than expected credit metrics due to the exposure to the highly competitive market conditions in the Italian market and the negative impact from Telecom Italia's content strategy," says Ernesto Bisagno, a Moody's Vice President -- Senior Credit Officer and lead analyst for Telecom Italia.
"While the dividend suspension will allow for some cash savings, the negative outlook takes into account that the improvement in credit metrics will depend on the company's ability to restore earnings growth in 2023 in a highly competitive market," adds Mr Bisagno.
08 Mar 2022
Milan, March 08, 2022 -- Moody's Investors Service ("Moody's") has today downgraded the corporate family rating (CFR) and the ratings of all senior unsecured debt instruments issued (or guaranteed) by Telecom Italia S.p.A. ("Telecom Italia", "the company" or "the group") and its subsidiaries to Ba3/(P)Ba3 from Ba2/(P)Ba2. Concurrently, Moody's has downgraded to Ba3-PD from Ba2-PD the company's probability of default rating (PDR). The outlook for the entities remains negative.
Today's action follows the reporting of Telecom Italia's 2021 results, which showed a significant reduction in organic EBITDA by 21.9% in the fourth quarter (-9.6% for the full year), due to weak domestic operations partially offset by steady contribution from Brazil, and the announcement [1] of the new 2022-2024 plan, with an additional EBITDA decline in the low teens in percentage terms in 2022, and an expected recovery afterwards, implying a flat compound annual growth rate over 2021-2024.
The company also said it is exploring the separation of its wholesale operations, mostly including the primary and secondary networks, from the retail activities, mainly focusing on consumer and enterprise customers. The company outlined the benefits associated with the so-called delayering of its operations, as the entities operating independently would increase their strategic focus, while gaining some regulatory relief and benefiting from a more efficient capital allocation. The process would take 12-18 months to complete with more details around the capital structure of each entity to be provided later in 2022.
Despite the potential for a network separation, Telecom Italia's rating considers the company's current perimeter and configuration and factors in the evolution of the credit metrics based on the guidance for the group as a whole. However, should the company proceed with the delayering strategy, Moody's would assess its implications on the business model of each entity, as well as the future financial profile including the deleveraging trajectory and potential to generate free cash flow. This could ultimately lead to a different rating outcome.
"The downgrade of Telecom Italia's ratings reflects the company's much weaker than expected credit metrics due to the exposure to the highly competitive market conditions in the Italian market and the negative impact from Telecom Italia's content strategy," says Ernesto Bisagno, a Moody's Vice President -- Senior Credit Officer and lead analyst for Telecom Italia.
"While the dividend suspension will allow for some cash savings, the negative outlook takes into account that the improvement in credit metrics will depend on the company's ability to restore earnings growth in 2023 in a highly competitive market," adds Mr Bisagno.
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