Telecom Italia’s ratings upgraded to Ba2 by Moody’s Ratings

Investing.com -- Today, Moody’s Ratings has upgraded the long term corporate family rating (CFR) and the probability of default rating (PDR) of Telecom Italia (BIT:TLIT), Italy’s leading telecommunications provider, from Ba3 to Ba2. The ratings on the senior unsecured debt issued by Telecom Italia and its subsidiaries, Telecom Italia Capital S.A. and Telecom Italia Finance, S.A., have also been upgraded from Ba3 to Ba2. The outlook for all three entities has been revised to stable from positive.

The upgrade reflects Telecom Italia’s ongoing earnings recovery and improved credit metrics. Ernesto Bisagno, a Moody’s Ratings Vice President - Senior Credit Officer and lead analyst for Telecom Italia, expects the company to generate positive free cash flow over 2025-26, which will drive further deleveraging.

The rating upgrade is attributed to Telecom Italia’s strong financial profile, demonstrated by strong earnings growth and better-than-anticipated free cash flow generation. The company’s adjusted EBITDA rose by 7.4% to €4.3 billion in 2024. Moody’s expects the company’s EBITDA to continue growing in the mid-single-digit percentages each year over 2025-26, driven by growth in the Enterprise business, improving KPIs in the consumer segment, and steady revenue growth in Brazil.

Telecom Italia’s adjusted free cash flow is expected to average around €375 million annually over 2025-26. This expectation is supported by consistent earnings growth and a reduction in capex. Telecom Italia is also expected to receive significant cash inflows linked to the monetization of the fee dispute related to the 1998 payment to the state for fees licensing, and the disposal of its submarine cable unit Sparkle for €700 million.

Consequently, Moody’s expects Telecom Italia’s adjusted leverage to decline towards 2.6x by 2026, positioning the company well within the Ba2 rating category. The company’s Ba2 rating reflects its scale and position as the incumbent service provider in Italy, its international diversification in Brazil, and the company’s commitment to maintain a net leverage below 1.7x.

Telecom Italia’s liquidity is good, with cash and cash equivalents of €4.6 billion at December 2024. The company also has access to €3 billion available under its revolving credit facility (RCF) due in 2030. Telecom Italia has cumulative debt maturities of €4.5 billion over 2025-26, which are more than covered by the current liquidity sources.

The stable outlook reflects the company’s steady operating performance and Moody’s expectation that Telecom Italia’s credit metrics will continue to improve over the next two years, supported by ongoing earnings recovery and debt repayments.

Further upward pressure in the next 12-18 months could develop if Telecom Italia’s operating performance continues to strengthen, and its debt/EBITDA ratio declines consistently below 2.5x. However, downward rating pressure could develop if operating performance weakens, such that its leverage increases above 3.0x on a sustained basis, with persistent negative FCF and deterioration in the interest coverage metrics.

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