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April 24 (The following statement was released by the rating agency)
Fitch Ratings has assigned Italian tower business EI Towers S.p.A.'s (EIT;
'BBB'/Stable) issue of 3.875% notes due April 2018 for an aggregate amount of EUR230m a final
senior unsecured 'BBB' rating.
The final rating for the 2018 notes follows a review of final documentation
which materially conforms to information received when Fitch assigned the
expected 'BBB(EXP)' rating on 10 April 2013.
The notes are expected to be used to refinance all of EIT's existing debt and
for general corporate purposes. The notes will be direct, general, unconditional
and unsecured obligations of EIT and rank pari passu with all the company's
other outstanding unsecured obligations. The notes includes a negative pledge
provision binding EIT, a limitation on EIT incurring additional debt (subject to
some exceptions) that would cause consolidated net debt to EBITDA to exceed
3.25x and a covenant limiting transactions with affiliates that do not comply
with an arms-length principle.
KEY RATING DRIVERS
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.
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
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
- 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
The Italian Competition Authority subjects EIT 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 on EIT
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.
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
LIQUIDITY AND DEBT STRUCTURE
Liquidity at EIT is good. At end-2012, EIT had EUR22m of cash and cash
equivalents. Net proceeds of EUR226m from the notes issued will be used to
refinancing all of EIT's debt, leaving no refinancing risk until the notes
matures in April 2018. EIT is able to generate a good level of free cash flow,
and should not be dependent on Mediaset for financing.