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Rating Action:

Moody's announces impact on Italian corporate government-related issuers following Italy's sovereign downgrade

16 Feb 2012

London, 16 February 2012 -- Moody's Investors Service has today downgraded the ratings of two Italian government-related issuers, and changed the rating outlook of one other to negative from stable.

The rating actions are as follows:

- Eni SpA's ("Eni") long-term senior unsecured ratings and its guaranteed subsidiaries have been downgraded to A2 from A1 and the senior unsecured rating of Eni USA Inc. has been downgraded to A3 from A2. The group's Prime-1 short-term issuer rating is unchanged and the outlook on ENI's ratings remains negative.

- Poste Italiane SpA's ("Poste") issuer rating and the senior unsecured rating on the group's EUR750 million bond guaranteed by the Government of Italy have been downgraded to A3 from A2. The short-term issuer rating has also been downgraded to Prime-2 from Prime-1 and the outlook on Poste's ratings remains negative.

- Finmeccanica SpA's ("Finmeccanica," together with subsidiaries Finmeccanica Finance SA and Meccanica Holdings USA, Inc.) rating outlook has been changed to negative from stable. The group is rated Baa2.

These rating actions follow Moody's recent decision to downgrade Italy's sovereign rating to A3 from A2, as announced on 13 February 2012. For full details, please refer to the webpage containing all of Moody's related announcements http://www.moodys.com/newsandevents/topics/euro-area-sovereign-crisis-affected-credits/-/007022/-/-/0/0/-/0/-/-/en/global/rr.

This concludes the actions on Italian corporate government-related issuers following the action on Italy's sovereign rating.

RATINGS RATIONALE

ENI SpA

The downgrade of Eni's ratings reflects (i) that the group has a degree of exposure to Italy amid ongoing weak economic conditions; (ii) soft liquidity management practices in the context of the volatile operating environment affecting the Italian and European banking sectors; and (iii) weakly positioned credit metrics as a result of delays in the execution of the group's asset disposal programme.

Moody's notes ENI's recent efforts to lengthen the maturity profile of its debt by extending the tenor of several of its bank lines and raising long-term finance in the corporate bond market. However, despite this, the group continues to rely to a certain extent on the availability of short-term funding to complement medium- and long-term committed lines and support its liquidity position, at a time when Italian banks face significant funding challenges as a result of severe market disruption. While Moody's acknowledges Eni's favoured access to the capital markets (underpinned by its unique position within the Italian corporate sector), the group's liquidity profile fails to exhibit the degree of robustness that is typical of similarly rated corporate issuers.

In addition, Moody's notes that continuing delays in the completion of the ENI's asset disposal programme, including the divestment of its 33% stake in Galp Energias, left the group's financial metrics weakly positioned relative to its rating at the end of 2011. In 2011, a favourable oil price environment helped offset the loss of Libyan production and the effect of particularly challenging operating conditions in the European gas markets (as spot gas prices remain significantly below long-term prices and competitive pressures intensify within the Italian energy sector). However, despite this, Moody's estimates that ENI's retained cash flow/net debt ratio was around 36% in 2011. As a result, a recovery of Eni's credit metrics to levels commensurate with Moody's expectations for the A1 rating within the next 12 months looks increasingly doubtful.

However, Eni's A2 rating continues to reflect the group's solid business position as one of Europe's largest oil & gas companies. The group displays a sizeable portfolio of upstream assets, which has been enhanced in recent years by a string of acquisitions. Looking ahead, the planned development of Eni's attractive pipeline of large-scale projects should help underpin its reserve base and production profile, in Moody's view.

The negative outlook reflects Moody's view that further downward pressure could be exerted on Eni's long- and short-term ratings if the group fails to strengthen its liquidity profile, in the context of the ongoing weak economic conditions prevailing in Italy and the volatile operating environment affecting the European banking sector.

A stabilisation of Eni's rating outlook is therefore predicated on the implementation of more robust liquidity management practices in parallel with some material improvement in credit metrics. Such an improvement would be evidenced by the group's ability to maintain a retained cash flow/net debt ratio of close to 40% and a gross debt/ total capital ratio in the mid-30s in percentage terms through the cycle.

Moody's would consider downgrading Eni's rating further if the group fails to (i) strengthen its liquidity profile in the context of a material deterioration in the Italian macroeconomic environment and worsening funding conditions for banks; and/or (ii) maintain a retained cash flow/net debt ratio of close to 40% and gross debt/total capital in the mid-30s in percentage terms through the cycle.

Conversely, upward pressure on Eni's rating could develop in the event of (i) permanent and material balance-sheet deleveraging, which may be facilitated by the separation of 52.5%-owned Snam Rete Gas, currently being considered by the Italian government as part of a broad programme of economic liberalisation measures, and would result in gross debt/total capital falling to the low 30s in percentage terms and retained cash flow/net debt rising sustainably above 40% through the cycle (both ratios on a fully adjusted basis); in conjunction with (ii) the implementation of more robust liquidity management practices. A rating upgrade would also be predicated on (iii) the successful execution of Eni's key upstream projects; (iv) an improved performance from its gas marketing business; and (v) the maintenance of a balanced country risk exposure.

POSTE ITALIANE SpA

The downgrade of Poste's rating follows that of Italy's sovereign rating and is based on Moody's view that group's credit quality is strictly correlated to that of the government. This correlation reflects Poste's large exposure to Italian government bonds and funds deposited with the Italian Ministry of Economy and Finance, as well as the fact that the Italian government is the largest customer of the group. In line with Moody's rating methodology for government-related issuers, Poste's A3 rating reflects the combination of (i) a baseline credit assessment (BCA) of 7 (A3 equivalent); (ii) the A3 domestic currency rating of the Government of Italy (recently downgraded); (iii) very high dependence; and (iv) high support.

Given its high correlation to the Italian government, Poste's BCA is constrained by the sovereign rating, despite the group's stronger credit metrics. The BCA takes also into account that the group has been successful in maintaining stable operating performances, a result of the increasing contribution from its financial services business and the launch of new products. This success is despite the ongoing decline in mail volumes and the liberalisation of the postal market in Italy. In addition, although Moody's anticipates a degree of deterioration in Poste's profitability over the coming years, the rating agency expects that the group will maintain solid credit metrics going forward. As at June 2011, Poste's financial leverage, on a last twelve month basis and measured as debt/EBITDA (as adjusted by Moody's), stood at 1.8x and its retained cash flow/net debt at 24% (excluding double dividend payment during the LTM period). Moody's notes that, for the forseeable future, Poste's overall rating is likely to remain in line with that of the government.

Going forward, Moody's would expect any deterioration in Poste's key metrics to be modest, but could downgrade the group's issuer rating following a further downgrade of the sovereign rating. Moody's could lower Poste's BCA in the event of a significant deterioration in the group's operating profitability. Such a deterioration would be indicated by financial leverage, on a debt/EBITDA basis, increasing sustainably above 2.0x and retained cash flow/net debt approaching 20% on an ongoing basis. Moody's will also monitor any change in the group's business risk profile following any further development of its Banca del Mezzogiorno project. In addition, the rating agency would consider lowering the BCA if Poste's free cash flow remains negative for a prolonged period of time.

An upgrade of Poste's issuer rating is considered unlikely by the rating agency in the intermediate term given that upside potential on Poste's issuer rating is currently limited by the current sovereign rating. In terms of required credit metrics, Moody's would consider an upgrade of Poste's issuer rating only if (i) retained cash flow/net debt remains comfortably above 30%; (ii) debt/EBITDA remains comfortably below 2.0x on an ongoing basis; and (iii) the group exhibits a track record of positive results at its Mail division and positive free cash flow generation.

Moody's could raise Poste's BCA following (i) an upgrade of the sovereign rating; (ii) the successful implementation of the group's investment programme, resulting in sustained profitability improvements in the Mail division; and (iii) the group's success in withstanding the ongoing liberalisation of the postal market in Italy, thereby maintaining stable volumes and market share.

FINMECCANICA SpA

The change of outlook on Finmeccanica's Baa2 rating to negative from stable follows the downgrade and ongoing negative outlook of Italy's sovereign rating and broadly reflects (i) the weak positioning of its standalone credit profile coupled with (ii) the greater challenge it faces in delivering needed operational improvement and executing asset disposals in view of its exposure to cuts in defence budgets across many European nations.

Finmeccanica's Baa2 rating reflects (i) a BCA of 10 (Baa3 equivalent); (ii) the A3 rating of the Government of Italy; (iii) moderate dependence; and (iv) strong support. The Government of Italy (through The Italian Ministry of Economy and Finance) owns approximately 30% of Finmeccanica shares and through special powers incorporated in the group's by-laws has control of the board.

Moody's expects that the same factors that have weighed on the Italian sovereign rating will also adversely affect Finmeccanica's business results over the intermediate term. This is because the group generates around 20% of its sales within Italy and a substantial portion are defence-related, with the Government of Italy being a key customer and the Italian Ministry of Defence budget slated to fall 28% this year. Compounding in-country headwinds is Finmeccanica's heavy exposure to defence spending levels for the whole of continental Europe, and the US and UK more broadly, which are also experiencing downward pressures.

Finmeccanica's key credit metrics remain very weak for the rating category, with profitability measures having been adversely affected by restructuring-related charges (EUR753 million for the group's B787 programme alone in third quarter 2011) incurred to effect a business transformation in order to reduce inefficiencies and improve core operating performance. Revenues are declining in the Defense Electronics and Security division (around a third of total sales), owing to the challenging operating environment for defence contractors. The group has proposed approximately EUR1 billion of asset sales (from civil-related activities and monetisation of non-strategic partnerships), to be executed by the end of 2012, the proceeds from which would be applied entirely to debt reduction. Credit profile improvement relies not only on successful execution of these asset sales at favourable valuations, but also on consistent improvement in operating performance given the expectation of continued challenging market conditions.

Of note and lending support to the rating, however, is Finmeccanica's solid liquidity profile, with no meaningful debt maturities until December 2013 and a back-stop EUR2.4 billion revolving credit facility. The group's good liquidity provides it with time to monetise assets, improve profitability and cash flows, and strengthen its credit profile to a level more consistent with its low investment-grade rating.

Finmeccanica's rating could come under downward pressure if operational improvements are not realised, including demonstrated progress towards a return of operating margins and free cash flow to the 8% and EUR500 million level, respectively (with the Defense Electronics and Aeronautics divisions trending towards low-double-digit and high-single-digit operating margins, respectively). In addition, Moody's would consider downgrading the rating if it no longer expected the group's targeted asset sales (EUR1 billion) and ensuing deleveraging (towards 3x or lower on a Moody's-adjusted debt/EBITDA basis) to occur. An inability to reverse the declining trend in revenues at Finmeccanica's core business units could also warrant consideration for a rating downgrade, along with additional downward revision(s) of the Italian sovereign rating.

While unlikely over the near term, the rating outlook could be stabilised as a result of the successful execution of Finmeccanica's comprehensive restructuring plan and the absence of further erosion in operating performance. Moody's could upgrade the rating if (i) Finmeccanica's consolidated operating margins are sustained above the 10% level; (ii) return-on-capital (EBITA/average assets) improves to around 11%; and (iii) retained cash flow/net debt reaches the high 20s in percentage terms. These results would have to be on a sustained basis and be coupled with maintenance of a strong liquidity profile and a revenue backlog greater than two years.

Please see the subsequent individual credit opinion of each respective issuer on moodys.com for the more detailed implications of this rating action.

PRINCIPAL METHODOLOGIES

The principal methodology used in rating Eni SpA was the Global Integrated Oil & Gas Industry Methodology published in November 2009. Other methodologies used include the Government-Related Issuers Methodology, published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

The principal methodology used in rating Poste Italiane SpA was the Global Postal and Express Delivery Industry Methodology published in December 2011. Other methodologies used include the Government-Related Issuers Methodology, published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

The principal methodology used in rating Finmeccanica was the Global Aerospace and Defense Industry Methodology published in June 2010. Other methodologies used include the Government-Related Issuers Methodology, published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Rome, Italy, Eni SpA is one of the largest diversified oil & gas companies in the world, with total proven hydrocarbons reserves of 6.6 billion barrels of oil equivalent, production of around 1.55 million barrels of oil equivalent per day in the first nine months of 2011, and operations in more than 70 countries.

Headquartered in Rome, Italy, Poste Italiane SpA is the country's leading postal service operator. Poste provides the delivery of mail, as well as express courier, parcel and logistics services in Italy (SDA Express Courier) and is also engaged in mass mail printing (Postel) and stamp sales. The group has a universal service obligation (USO) to provide comprehensive postal services. It operates a branch network of nearly 14,000 post offices and is one of the largest employers in Italy, with approximately 146,000 employees as of June 2011.

Headquartered in Rome, Italy, Finmeccanica SpA is one of Italy's largest industrial conglomerates and receives approximately half of the country's annual defence outlays. Finmeccanica is concentrated in the defence electronics and aerospace (helicopters and aircraft) markets and has interests in the transportation (train signalling systems) and energy sectors. The group reported revenues of around EUR18.5 billion for the 12 months ended 30 June 2011.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the ratings for Eni SpA are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Information sources used to prepare the ratings for Poste Italiane SpA are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Information sources used to prepare the ratings for Finmeccanica SpA are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

The below contact information is provided for information purposes only. Please see the issuer page on www.moodys.com for Moody's regulatory disclosure of the name of the lead analyst and the office that has issued the credit rating.

The person approving the credit rating for each issuer is as follows:

ENI SpA: Olivier Beroud, Managing Director, Corporate Finance, JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454.

Poste Italiane SpA is Eric de Bodard, MD -- Corporate Finance, JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454.

Finmeccanica SpA is Michael J. Mulvaney , MD -- Corporate Finance, JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653.

The relevant Releasing Office for each rating is identified under the Debt/Tranche List section on the Ratings tab of each issuer/entity page on moodys.com

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Francois Lauras
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Olivier Beroud
Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's announces impact on Italian corporate government-related issuers following Italy's sovereign downgrade
No Related Data.
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