May 23, 2013 / 8:01 AM / in 5 years

CDS: Telecom Italia bonds, CDS suffer after S&P cut

LONDON, May 23 (IFR) - Telecom Italia’s outstanding bond curve widened on Thursday and the cost of insuring its debt rose, after ratings agency Standard & Poor’s cut its long term credit rating for the group to the brink of junk, to BBB- from BBB.

By 07:30 GMT, the company’s senior bonds, maturing between January next year and March 2055 were all bid between 2bp and 5bp wider over mid-swaps according to Tradeweb. Its perpetual subordinated securities widened by 17.4bp to hit around 660bp over swaps.

Those hybrid bonds were issued in March this year, with the express aim of protecting the group’s ratings from downgrade.

“Holders of those notes will be particularly disappointed with the ratings action,” one London-based syndicate banker said.

Telecom Italia’s five-year CDS also widened by around 4.4bp on the day, and was bid around 263bp according to Markit.

S&P said the action follows its downward revision of the group’s business risk profile and reflects Telecom Italia’s debt leverage position.

“ will remain too high to sustain the ‘BBB’ rating level, given the lower business risk profile assessment,” the agency said in a statement.

The group, which has a debt pile of around EUR28bn, will continue to face very challenging conditions in its domestic telecom market in 2013-2014, S&P said.

The company is currently rated Baa3 by Moody‘s, which is also one notch above high yield territory.

Credit strategists at Mizuho said that credit investors should now be aware that “one false move could lead to a downgrade to sub-investment grade”. (Reporting By Josie Cox; Editing by Alex Chambers and Anil Mayre)

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