S&P assigns Optics Bidco, notes BB+

S&P said it assigned preliminary BB+ ratings to Optics Bidco SpA and its planned €4.5 billion of senior secured notes. The preliminary recovery rating is 3, with a recovery prospect of 50%-70% (rounded estimate: 65%). The outlook is negative.

Kohlberg Kravis Roberts & Co. LP signed a binding offer to buy Telecom Italia SpA's Optics Bidco for an enterprise value of €18.8 billion. KKR will finance the deal with about €4 billion in senior secured term loans, about €4.5 billion debt from TIM, and an equity injection of €10.5 billion.

“Our preliminary BB+ rating on Optics reflects our view of the company's strong market position as the largest fixed-line telecommunications access network in Italy, high capital barriers, and favorable growth prospects. Optics' business risk profile is underpinned by its strong position in the fixed-line wholesale market, high barriers to entry created by the substantial capital costs of the fixed-line access network, and the specific competitive landscape of Italy's wholesale broadband market,” S&P said in a press release.

However, “Our base case forecasts assume negative FOCF of above €400 million over 2024-2025. This, together with anticipated dividend payments, will result in leverage above 6x, increasing further over the forecast period. We understand that some capex is discretionary and could be reduced without materially jeopardizing the company's growth trajectory and that dividends could be reduced.

“Regardless, we see risks at the BB+ rating level from Optics' expected dividend policy, its large capex program, regulatory risks and revenue risks due to competition with other broadband providers,” the agency noted.

S&P warned it sees the company’s rating headroom over 2025-2026 weakening, versus its 6.25x maximum leverage trigger, making it tougher for the company to absorb a deviation from the agency’s forecast.

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