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20 Jun 2011
New York, June 20, 2011 -- Moody's has today placed the following ratings on review for possible
downgrade: (1) the A2 long-term senior unsecured ratings
of Enel S.p.A. ("Enel") and its guaranteed
subsidiaries, Enel Finance International N.V. and
Enel Investment Holding B.V., and the Prime-1
short-term rating of Enel Finance International N.V.;
(2) the Aa3 long-term senior unsecured ratings of Eni S.p.A.
(Eni) and its guaranteed subsidiaries, and the A1 senior unsecured
rating of Eni Lasmo (USA) Inc.; (3) the A3 long-term
senior unsecured ratings of Finmeccanica S.p.A. and
related supported entities (collectively, Finmeccanica); (4)
the Aa2 long-term issuer rating of Poste Italiane S.p.A.
(Poste) and the Aa1 senior unsecured rating on the EUR750 million bond
guaranteed by the Italian government issue by Poste; and (5) the
A2 long-term senior unsecured and issuer ratings and P-1
short-term rating of Terna - Rete Elettrica Nazionale S.p.A.
("Terna"). The Prime-1 short term ratings of
Eni and Poste have not been placed under review.
All of the above companies are government related issuers which have an
element of potential government support incorporated within their ratings
in accordance with Moody's rating methodology for government related issuers.
The above actions follow Moody's announcement on 17 June 2011 to place
on review for possible downgrade the Aa2 local and foreign currency bond
ratings of the Government of Italy. The main triggers for the review
for downgrade include: the growth prospects for the Italian economy
in coming years, and particularly the prospects for a removal of
important structural bottlenecks that could hinder a stronger economic
recovery in the medium term. The review will also examine the government's
ability to achieve ambitious fiscal consolidation targets and to implement
further plans to generate substantial primary surpluses in the medium
term. This will include an analysis of the vulnerability of the
Italian government debt trajectory to a rise in risk premia, as
well as the options for the government to react. The government's
new fiscal plan, which is expected to be announced shortly,
will be considered during the review. In addition, any broader
developments across the euro area, in particular with regard to
the resolution of the euro area debt crisis and its impact on funding
costs, could be important determinants of the outcome of Moody's
Enel is Italy's largest electricity company. Its current
A2 rating benefits from a one notch uplift from its standalone credit
profile for government support, as expressed by its Baseline Credit
Assessment ("BCA") of 7 (equivalent to an A3), in light
of its 31.2% ownership by the government. The review
will consider whether this one-notch uplift is still warranted
in the context of (i) a potential downgrade of Italy's rating and
(ii) in the light of such, will consider whether a reduced likelihood
of extraordinary support is more appropriate in the context of a possibly
weaker sovereign which may, in certain circumstances, face
increased demands on its resources. Enel's current BCA reflects
the breadth and diversity of the group's operations. Around
40% of EBITDA is derived from Italy, whilst operations in
Spain, Latin America and other international areas represent significant
business segments. Moody's assessment of its standalone credit
profile has recently improved given some positive regulatory developments
in Spain, including progress on the Spanish electricity tariff deficit
securitisation, and a significant deleveraging programme.
The rating agency points that the company still has a somewhat weak financial
profile and will need to gradually increase free cash flow, as targeted
over the life of its strategic plan. Assuming this is achieved,
it will allow its credit metrics to strengthen, ensuring a more
comfortable positioning at the current BCA given ongoing regulatory,
political and economic challenges in core markets and execution risks
relating to a large capex programme.
Eni is one of the largest diversified oil & gas companies in the world.
In light of its 30.3% direct and indirect government ownership,
Eni's current Aa3 rating benefits from a one notch uplift for government
support from its current standalone credit profile, as expressed
by its BCA of 5 (equivalent to an A1). The review will consider
whether this one-notch uplift is still warranted in the context
of a potential downgrade of Italy. Moody's points out, however,
that as one of Europe's largest oil & gas companies Eni enjoys
a solid business position, which is underpinned by a sizeable portfolio
of upstream assets and a gas & power business (including the substantial
regulated activities of its 55.56%-owned subsidiary
Snam Rete Gas) exhibiting greater resilience during downcycles despite
the intensifying competitive pressures at play within the Italian energy
sector. While a marked step-up in investments has led to
some material increase in Eni's financial leverage in recent years
and left its credit metrics weakly positioned relative to the BCA,
we expect that improved internal cash flow generation boosted by current
strong oil prices that help offset the short-term loss of Libyan
production as well as proceeds raised from asset sales, will allow
Eni to strengthen its credit metrics and bring them in line with levels
more supportive of a BCA of 5 within the next 12-18 months.
With operations concentrated in the defense electronics and aerospace
(helicpopters and aircraft) markets, as well as interests in the
transportation (train signaling systems) and energy sectors, Finmeccanica
is one of Italy's largest industrial conglomerates and receives
about half of Italy's annual defense outlays. The A3 senior
unsecured rating reflects a baseline credit assessment (BCA) of 9 (Baa2
equivalent), as well as two notches of uplift related to a "modest"
degree of dependence and "strong" support as perceived from
the Italian state and in the context of Moody's Government Related
Issuer Rating Methodology. With an approximate 30% ownership
interest, a heavy focus on the important defense industry and strong
export and labor market representation, we believe that Finmeccanica
remains an important entity to Italy. The BCA is broadly supported
by Finmeccanica's large size and scale (with approximately EUR 18.5
billion of revenue), a diverse civil and military product portfolio
which has grown fairly steadily to produce a strong backlog (approximating
EUR 49 billion at year-end 2010), and a good liquidity profile.
With somewhat high financial leverage and comparatively weak cash flow
and profitability measures, however, Finmeccanica's
rating could come under downward pressure to the extent that underlying
implicit support from the Italian government is weakened and/or macroeconomic
conditions impacting similarly situated companies more broadly begin to
evidence a more adverse impact than currently anticipated.
Poste is the Italian postal service operator with the universal service
obligation (USO) to provide comprehensive postal services in Italy.
In line with Moody's government related issuers rating methodology Poste's
Aa2 rating reflects the combination of a baseline credit assessment (BCA)
of 6 (A2 equivalent), the Aa2 domestic currency rating of the Italian
government (currently under review for possible downgrade), medium
dependence and high support. Poste's BCA reflects Moody's
view that despite the declining nature of the mature Mail business and
the potential threat following the liberalisation of the postal market
in Italy, Poste will maintain solid credit metrics going forward.
We would expect in any case a degree of deterioration in the company's
profitability over the coming years although we recognise Poste's
historical ability to compensate for the declining performances of its
mail division by launching new products and growing its financial services
business. As at FYE December 2010 key credit metrics (as adjusted
by Moody's) provided a degree of comfort to the existing BCA,
with the group's financial leverage, measured as debt/EBITDA,
at 1.9x and retained cash flow/debt of 24.5%.
Moody's review of Poste's ratings will also include an assessment
of the appropriateness of the rating on the bond guaranteed by the government
(which is currently rated one notch above the government rating) and Moody's
review of the rating of this bond might conclude with a multi-notch
downgrade with the bond rating aligned on the sovereign rating.
Moody's will also consider the potential change in the company's
business risk profile following the bid to acquire MedioCredito Centrale
(A2/P-1 also under review for possible downgrade) as part of the
project by the Italian Ministry of Economy and Finance, to develop
the Banca del Mezzogiorno. As the rating of Poste benefits from
a 3 notches uplift due to high support, a consequence of the review
of the support assumptions may be that the rating of Poste could be lowered
to a level below the rating of the sovereign.
Terna is the primary high-voltage (and very-high-voltage)
electricity transmission grid owner and operator in Italy. The
company's A2 rating currently benefits from a one-notch uplift
from its standalone credit profile for government support, as expressed
by its BCA of 7 (equivalent to the A3 rating category), in light
of the Italian government's 29.86% ownership.
The review will consider whether this one-notch uplift is still
warranted in the context of a potential downgrade of Italy's rating
and, in the light of such, whether a reduced likelihood of
extraordinary support is more appropriate in the context of a possibly
weaker sovereign which may, in certain circumstances, face
increased demands on its resources. Terna BCA's reflects
the low risk profile associated with the company's regulated transmission
activities under the well established Italian regulatory framework.
From a financial perspective, Terna's historical credit metrics
are comfortably positioned at the current BCA level, although the
company's significant investment programme over the period 2011-15,
associated funding requirements in the context of potentially rising interest
rates associated with pressures on the sovereign's rating,
as well as its aggressive dividend policy, are expected to weigh
on the company's financial profile over the medium term, thus
limiting financial flexibility.
More generally, the rating reviews of the above issuers will also
focus on their individual liquidity profiles and exposure to the Italian
macroeconomic environment, and the continued appropriateness of
the level of potential extraordinary government support embedded within
For additional information on rating factors, please refer to the
individual issuer credit opinions, available on www.moodys.com.
Please see the ratings tab on the issuer / entity page on Moodys.com
for the last rating action and the rating history of each issuer.
The principal methodology used in rating the above issuers were Moody's
"Government Related Issuers: Rating Methodology Update", published
in July 2010; "Global Aerospace and Defense Methodology,"
published June 2010; "Global Integrated Oil & Gas Industry"
published in November 2009; "Unregulated Utilities and Power
Companies", published August 2009; "Regulated Electric
and Gas Networks", published August 2009; and "Postal
and Express Delivery Companies" Industry Methodology, published
in December 2008. Other methodologies and factors that may have
been considered in the process of rating these issuers can also be found
on Moody's website.
On our website www.moodys.com, you can find further
information and any updates on the Lead Analyst to a specific Credit Rating,
and the office from which the credit rating was issued.
In addition to the above general contact information please find,
for each of the Credit Ratings affected, Moody's regulatory
disclosures on the lead analyst and the Moody's office that has
issued the Credit Rating on the ratings tab of the issuer page at www.moodys.com.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service, Inc.
Moody's Investors Service, Inc.
Moody's places ratings of Italian government related issuers on review for downgrade
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