Fitch: CDS Spreads Show Mounting Concern for Telecom Italia
NEW YORK -- August 6, 2013
Credit default swap (CDS) spreads on Telecom Italia SpA (TI) are widening as
Italy's largest phone company battles a weak economy and price pressure from
competitors, according to Fitch Solutions.
Fitch Ratings downgraded TI's Long-term Issuer Default Rating (IDR) to 'BBB-'
from 'BBB' on August 5. The Outlook on the Long-term IDR is Negative. The
downgrade reflects the worsening operating conditions in TI's domestic
business due to regulatory pressure, a continued mobile price war and a weak
economic environment. The erosion of TI's cash flow generation is expected to
continue into 2014. However, if the domestic business can be stabilized and
leverage brought under control, Fitch fundamentally views TI as an investment
The price of credit protection on TI's debt over a five-year horizon is 82%
higher compared to the broader sector, based on Fitch Solutions' CDS Index for
Italian telecoms. CDS liquidity for the issuer remains high, trading in the
11th global percentile (or with stronger liquidity than 89% of the contracts
in Fitch's CDS pricing universe). This indicates a high level of market
uncertainty over the company's credit prospects.
Meanwhile, Fitch Solutions' 1-Year Probability of Default (PD) for Telecom
Italia has climbed to 11.2%, significantly underperforming the 1-Year PD Index
for Western European telecoms, currently at 1%. This represents a 152% surge
from its year-ago level, reflecting an increasingly negative sentiment from
the equity market.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include hyperlinks to
companies and current ratings, can be accessed at www.fitchratings.com. All
opinions expressed are those of Fitch Ratings.
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