Research Update: Spanish Telecom Operator Telefonica Downgraded To 'BBB-/A-3' On Weaker Leverage Prospects; Outlook Stable

In contrast to our earlier expectation of improved adjusted credit metrics in 2020 and a return to adequate levels in 2021-2022, we now expect Telefonica's metrics will deteriorate this year, due to lower revenue and earnings, driven by weaker year-on-year service revenue as a consequence of the pandemic and adverse currency movements affecting contributions from the Latin American business. In 2021, operational stabilization, slightly more benign currency impacts, and endeavors to reduce leverage should provide more rating headroom, but are unlikely to be sufficient to restore metrics commensurate with the 'BBB' rating. We are therefore lowering our ratings on Telefonica to 'BBB-/A-3' from 'BBB/A-2'. The stable outlook reflects our expectations that Telefonica will maintain S&P Global Ratings-adjusted debt to EBITDA

...- In contrast to our earlier expectation of improved adjusted credit metrics in 2020 and a return to adequate levels in 2021-2022, we now expect Telefonica's metrics will deteriorate this year, due to lower revenue and earnings, driven by weaker year-on-year service revenue as a consequence of the pandemic and adverse currency movements affecting contributions from the Latin American business. - In 2021, operational stabilization, slightly more benign currency impacts, and endeavors to reduce leverage should provide more rating headroom, but are unlikely to be sufficient to restore metrics commensurate with the '###' rating. - We are therefore lowering our ratings on Telefonica to '###-/A-3' from '###/A-2'. - The stable outlook reflects our expectations that Telefonica will maintain S&P Global Ratings-adjusted debt to EBITDA sustainably below 4.0x, calculated using pro rata ownership in Telefonica Germany, Telefonica Brazil, and Telefonica Infra (which are fully consolidated in Telefonica's...

Research Update