Telecom Italia SpA

The stable outlook reflects our expectation of adjusted leverage above 4x and funds from operations (FFO) to debt below 20% in 2021 and 2022. We could lower the rating if we forecast adjusted leverage rising and staying above 4.5x. This could stem from a return to unsustainable mobile competition that depresses the ARPU or causes a spike in customer attrition, or from longer term fixed-line deterioration under wholesale pressure from Openfiber and retail pressure from new entrants. If, contrary to our current expectations, Telecom Italia moved to relinquish control over its fixed network, we could also consider a downgrade based on a weaker business profile, unless this was offset by a material reduction in leverage. We could raise the rating

...We have not yet incorporated in our forecast KKR's offer to take Telecom Italia (TIM) private, but the impact on the ratings could be material. On Nov. 21, 2021, TIM announced that it had received a non-binding and indicative offer from U.S. private equity fund KKR to launch a possible public tender offer for the entire share capital of the company. Based on this indicative offer, KKR would pay, in cash, 0.505 per ordinary and saving share--a premium of about 45% on the price of the company's ordinary shares--for a total of 10.8 billion to delist TIM. We do not consider the take-private transaction as our base-case scenario for TIM because the offer is non-binding, the largest shareholder (Vivendi) is currently opposed, and the Italian government may block the transaction if it deemed it not in the national interest. The government has stated that it would assess any firm and binding offer, and we believe its support could be conditional on assurances related to financial policy, jobs,...

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