Fitch Affirms EI Towers at 'BBB'; Outlook Stable

Thu May 8, 2014 2:03am EDT

(The following statement was released by the rating agency) LONDON, May 08 (Fitch) Fitch Ratings has affirmed EI Towers S.p.A.'s (EIT) Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook. Fitch has also affirmed EIT's senior unsecured rating at 'BBB'. The ratings reflect EIT's stable business profile with a highly visible revenue stream derived from long-term, inflation-linked contracts. Fitch expects earnings and cashflow to be stable, given the strength of the company's competitive position, new contracts from mobile players, and efficient management of its cost base. The ratings also reflect a weak legal parent-subsidiary linkage between EI Towers and Mediaset S.p.A., which has reduced its shareholding to 40% from 65% but will still retain control. The limited impact of Mediaset on the credit profile of EIT reflects antitrust regulation enabling the latter to maintain its operational independence. KEY RATING DRIVERS: M&A Risk EIT intends to diversify further into the mobile and radio segments, and could be interested in acquiring a portfolio of mobile towers from either Wind Telecomunicazioni S.p.A. or Telecom Italia S.p.A.. A deal would likely attract competitors, for example infrastructure funds and international players. However, EIT is well-positioned for a deal given it is the only privately owned - and listed - player in Italy. Fitch notes that while M&A could result in an increase in leverage, the likelihood of a transaction remains uncertain at present and would therefore be treated as event risk. Parent-Subsidiary Linkage Mediaset sold 25% of its stake in EIT in April 2014, bringing its total shareholding down to 40%. However, Mediaset will retain control of EIT, having appointed the Board of Directors and no change is expected in the business relationship between the two entities. Companies in the Mediaset Group accounted for 77% of EIT's revenues in 2013. Fitch believes that the weak legal parent-subsidiary linkage will continue, based on antitrust regulation helping to maintain the independent operations of EIT, the lack of cross-default and debt guarantees, and the small size of EIT's dividend stream relative to Mediaset's debt service requirements. Stable Business Profile Revenues were steady in 2013 following the completion of digital switchover in 2012, as new volumes offset the loss of one-off installation revenues and the loss of small TV broadcasters gradually exiting the market. Future earnings are likely to be supported by new hosting contracts, particularly with mobile operators, accelerated cost efficiencies, and the assignment of additional radio spectrum for free-to-air digital terrestrial television (DTT). Strong Market Position EIT's competitive position is protected by high switching costs for customers and high barriers to entry, as well as by a strict regulatory framework for the construction and development of new towers in Italy. Although product differentiation is rather limited, Fitch views EIT as having strong bargaining power due to the critical nature of services rendered and limited competitive threats from the only alternative operator Rai Way S.p.A.. DTT is expected to remain the dominant TV distribution platform in Italy, owing to the lack of cable infrastructure and the costs of rolling out fibre on a nationwide basis. RATING SENSITIVITIES Positive rating action is unlikely in the medium term as EIT derives most of its revenue from companies with weaker credit profiles than EIT. Negative: Future developments that could lead to negative rating action include: - Funds flow from operations adjusted net leverage rising above 3.0x on a sustained basis (FY13: 2.3x) - Changes in the regulatory or competitive environment threatening EIT's strong market position as a quasi-utility - A significant deterioration in the credit profile of Mediaset, its main customer and majority shareholder, although this may be mitigated if EIT's operational and financial independence remains intact Contact: Principal Analyst Jonathan Levy Analyst +44 20 3530 1701 Supervisory Analyst Giovanni Reichenbach Associate Director +44 20 3530 1255 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chair Damien Chew, CFA Senior Director +44 20 3530 1424 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on 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. Applicable criteria, 'Corporate Rating Methodology', dated 5 August 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status 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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