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Telecom Italia Tightens On Debt Exchange; Optics Unit Receives Initial Ratings

COMMUNICATIONS


  • Not much colour available on the Telecom Italia headline; BBG indicates the Vivendi complaint filed after the equity sell-off on March 7 and focuses on debt levels for 2024.
  • TIM Spreads have tightened by up to 18bps since Wednesday’s close after the debt exchange was announced with which investors have the option of taking bonds with substantially similar terms in the new higher rated NetCo/Optics unit. Equity is 3% lower since Wednesday’s close.
  • The new unit has been assigned a prelim rating of BB+[N] at S&P while Fitch has assigned a BB and BB+ IDR and instrument rating (TIM rating profile is B1/B+/BB-).
  • S&P base case sees negative FOCF of negative EUR ~400mn over 2024-2025 which together with div payments and high fiber CapEx will result in leverage >6x against a threshold of sustainably above/below 6.25x. TIM-reported pro-forma FY23 leverage was 4.3x.
  • Fitch see Optics as strongly positioned at its level; they see leverage of 5.9x to begin and ~6x through to FY27 against thresholds of 5.8x/6.8x. Revenue is projected to grow at a 1.4% CAGR from 2022 to 2028, with EBITDA increasing from EUR 1.6bn ito EUR 2bn by 2027.
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