UPDATE 1-S&P cuts Finmeccanica to junk as disposals slow

Fri Jan 18, 2013 2:49pm EST

* S&P cuts long-term rating to BB+ from BBB-, outlook stable

* Finmeccanica confirms targets, commitment to disposals

* Moody's, Fitch recently stuck to investment grade rating

MILAN, Jan 18 (Reuters) - Ratings agency Standard & Poor's downgraded its rating on Italy's Finmeccanica to junk on Friday after the state-owned defence group missed its target for 1 billion euros ($1.3 billion) of asset sales by the end of 2012.

S&P cut its long-term corporate credit rating on Italy's second-biggest industrial group to BB-plus from BBB-minus with a stable outlook, which reflects expectations of a slight rise in its 2013 operating profits.

"Given continuing uncertainty regarding the company's disposal decisions ad their timing, we are now less confident that Finmeccanica will be able to carry out disposals as previously planned," S&P said in a statement.

Finmeccanica, burdened by 4.8 billion euros of debt, put on the block its energy and transportation assets more than one year ago to avoid credit downgrades that could undermine its prospects at a time of widespread defence spending cuts.

However, the state-owned conglomerate failed to deliver on its target of raising 1 billion euros by the end of 2012. It finalised only the sale of its stake in aviation company Avio for 260 million euros, sold to GE in December.

S&P is the first rating agency to cut its rating on Finmeccanica to junk. Moody's and Fitch recently confirmed their investment grade credit rating.

In a statement that followed the S&P move, Fineccanica said the cut does not change terms of its outstanding loans and bond issues, confirming its 2012 targets including for a positive free cash flow generation.

"Finmeccanica is committed to further deliver on its restructuring program and to timely execute its disposal plan," it said. The company said it has a strong liquidity position and no significant refinancing needs in the bond market until the end of 2017.

Finmeccanica has set a Jan. 23 deadline for bidders to submit offers for its AnsaldoEnergia unit.

S&P said the sale of AnsaldoEnergia that could yield proceeds of 400-500 million euros would be positive but not enough to trigger positive rating decision.

The ratings agency said it would consider a positive outlook or a rating action if Finmeccanica reduces its debt to reach an adjusted FFO (fund from operations) ratio to debt towards 30 percent from 20 percent seen at end-2012.

Shares of Finmeccanica, which ended flat on Friday, have risen nearly 20 percent in the last month, helped by positive broker views and investor optimism over asset disposals.

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