Research Update: Telecom Italia Downgraded To 'BB' On Weaker Credit Ratios; Outlook Stable

In contrast to our previous forecast that our adjusted credit metrics for Telecom Italia would improve in 2020 and be rating commensurate in 2021-2022, we now expect lower revenue and earnings will cause our adjusted leverage metric to rise to 4.3x in 2021, and remain above our 4.0x threshold for the 'BB+' rating until 2023. The decline is due to weaker year-on-year domestic service revenue, a slower recovery of roaming and handset sales, and adverse currency movements that are still affecting contributions from the Brazil business in 2021. We anticipate stabilization from 2022 and growth thereafter, fueled by broadband and ICT revenue, but not enough to reduce adjusted leverage to less than 4.0x. In addition, further pressure could come from

...- In contrast to our previous forecast that our adjusted credit metrics for Telecom Italia would improve in 2020 and be rating commensurate in 2021-2022, we now expect lower revenue and earnings will cause our adjusted leverage metric to rise to 4.3x in 2021, and remain above our 4.0x threshold for the '##+' rating until 2023. - The decline is due to weaker year-on-year domestic service revenue, a slower recovery of roaming and handset sales, and adverse currency movements that are still affecting contributions from the Brazil business in 2021. - We anticipate stabilization from 2022 and growth thereafter, fueled by broadband and ICT revenue, but not enough to reduce adjusted leverage to less than 4.0x. In addition, further pressure could come from new fixed-line player Iliad once it launches. - We are therefore lowering our long-term rating on Telecom Italia to '##' from '##+'. - The stable outlook reflects our expectation of adjusted leverage 4.0x-4.5x and funds from operations (FFO)...

Research Update