Fitch Assigns EI Towers 'BBB' IDR; Outlook Stable

Wed Apr 10, 2013 11:49am EDT

(The following statement was released by the rating agency) LONDON, April 10 (Fitch) Fitch Ratings has assigned Italian tower business EI Towers S.p.A. (EIT) a Long-term Issuer Default Rating (IDR) of 'BBB' with a Stable Outlook. Fitch has also assigned EIT's planned bond issuance of up to EUR250m a 'BBB(EXP)' expected senior unsecured rating. EIT is a quasi-utility, playing a vital role in the transmission of a significant portion of Italy's free-to-air television signals. It has long-term inflation-linked contracts, which give rise to highly visible revenue streams. Fitch expects future profitability and cash flow generation to be stable given the low level of competition. Mediaset (65% owner; unrated) should have a limited impact on EIT's credit profile as regulatory conditions help to maintain EIT's operational independence. KEY RATING DRIVERS EIT's ratings reflect the company's highly visible, non-cyclical and inflation-linked revenue streams. These are underpinned by long-term contracts to rent space on its towers for radio and TV broadcast and telecoms transmission equipment. TV-related services form the bulk of EIT's revenue. 4G (LTE) roll-outs are likely to provide the additional source of growth in the future. Assigning additional radio spectrum for DTT use could also boost EIT's revenue and profitability. Mediaset's 65% ownership stake and strong influence over the makeup of EIT's Board of Directors creates a parent-subsidiary linkage between the two entities. In 2012, companies of the Mediaset Group accounted for 76% of EIT's revenues. However, Fitch believes that the degree of linkage between the two is weak due to the following factors: - Anti-trust regulations that maintain the independent operation of EIT from Mediaset influence - The importance of EIT's operations to Mediaset's ongoing operations, even if Mediaset got into financial difficulty. - The small size of EIT's dividend stream relative to Mediaset's debt service requirements. The Italian Competition Authority subjects EI Towers to a number of undertakings including fair and transparent access to EIT's infrastructure for third-party broadcasters, transparent and non-discriminatory pricing, a wholly independent executive management team and the requirement to remain a listed entity for corporate governance purposes. As a result of the weak linkage between the two companies, EIT's credit profile is only partly limited by Mediaset's credit profile. The Stable Outlook for EI Towers already takes into account the financial pressure Mediaset is currently facing given the sharp drop in Italian TV advertising expenditure in 2012, and the limited visibility of any recovery given the weak Italian macroeconomic environment. Competitive threats to EIT remain limited. The next largest tower operator in Italy is Raiway but its primary focus is serving the Italian state TV broadcaster, RAI. From an industry perspective, the lack of cable infrastructure in Italy and the size of investment needed to roll out fibre-optic networks on a nationwide scale ensures that free-to-air television is likely to remain the dominant TV distribution platform at least for the next decade. RATING SENSITIVITIES Negative : Future developments that could lead to negative rating action include: - Expectations that funds flow from operations adjusted net leverage would trend above 3.0x on a sustainable basis - Any change in the regulatory or competitive environment that would jeopardise EIT's strong market position as a quasi-utility. - A significant deterioration in the credit profile of Mediaset, its main customer and majority shareholder, which might be mitigated if concrete steps are taken to protect EIT's operational and financial independence. Positive: Future developments that could lead to positive rating action include: - Positive rating action is unlikely in the medium term as EIT derives most of its revenue from companies with credit profiles mainly in the 'BBB' category or lower. LIQUIDITY AND DEBT STRUCTURE Liquidity at EIT is expected to be good, assuming that the company's planned bond issuance is successfully completed. At end-2012, EIT had EUR22m of cash and cash equivalents. Proceeds from the bond issue will be used to refinancing all of EIT's debt, leaving no refinancing risk over the next few years. EIT is able to generate a good level of free cash flow, and should not be dependent on Mediaset for financing. Contact: Principal Analyst Brian O'Brien Analyst +44 20 3530 1127 Supervisory Analyst Damien Chew, CFA Senior Director +44 20 3530 1424 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Michael Dunning Managing Director +44 20 3530 1178 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012 is available at www.fitchratings.com. Applicable Criteria and Related Research Corporate Rating Methodology here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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