Piazza Affari, S&P effect cuts debt burdens

The upgrade of Italy's credit rating from BBB to BBB+ by S&P, which took place on 11 April after years without a promotion, is not only a benefit for the public purse. The reduction in the perception of credit risk is transmitted to an important part of the market, benefiting state-controlled companies and banks. Fifteen credit institutions in Italy or operating in Italy were promoted.

According to S&P, banks, given their exposure to their home country, cannot generally have a better rating than the sovereign: but in any case, yesterday it acknowledged the "structural improvement in profitability", thanks to "greater operational efficiency, more resilient business models and improved asset quality". Promoted Intesa SanPaolo, whose long-term rating rose to BBB+.

Like Unicredit, whose outlook becomes positive as S&P may give it a higher sovereign rating: it will depend on the successful completion of potential transactions with Bpm and Commerzbank. The rating of Mediobanca, Finecobank and Mediolanum was also raised to BBB+. Upgrade for Bper, Iccrea and Mcc, whose rating goes from BBB- to BBB.The rating upgrade for investee companies is a sort of automatic in some cases, but not in all. Although it has to be said that even companies that do not get an upgrade still benefit in terms of reduced debt burdens because the pressure on indices such as the Itraxx, which measures corporate credit spreads by having credit default swaps on corporate companies as underlying assets, is eased.

In recent days, S&P has upgraded the rating of several public subsidiaries: from Cdp to its subsidiaries such as Poste Italiane, Autostrade per l'Italia, Terna and Snam. The peculiarity of the two electricity and gas infrastructure companies is that both had a rating aligned to that of the Italian Republic, but the 'stand alone' rating (the creditworthiness of the companies regardless of their link to the reference shareholder) was higher and equal to A-. But since in S&P's metrics a subsidiary cannot have more than a 'notch' of difference from the State, the overall rating was until a few days ago equal to BBB+, thus one notch higher than that of Italy. Now both Terna and Snam have a credit rating of A-, although the promotion of the latter has a few more peculiarities. On the other hand, the promotion, in the wake of that of the Italian State, is not expected to be passed on directly to other investees such as Eni and Enel or to other utilities under local public control, such as Hera, A2A and Iren, either because their rating was already higher than the sovereign's (A- for Eni and BBB+ for Hera) or because the stand-alone rating was already BBB anyway and the rating was not limited by that of the Republic.

But back to the Snam case. 'The improvement in creditworthiness was not automatic,' explains Luca Passa, cfo of Snam. We had ongoing discussions with S&P for the acquisition in Germany of 25% of Vier gas. Before finalising a transaction we present it, we explain the impact on rating metrics: in this case the outlay is EUR 920 million. Despite the announcement of this acquisition, they saw fit to upgrade. Snam's credit spreads narrowed by 14 basis points after the upgrade announcement. The spread on ten-year BTPs fell by 7 basis points after the latest ECB cut. The Itraxx corporate credit spread index narrowed by 5 basis points. The spread on the one billion hybrid bond we issued last year narrowed between 35 and 40 basis points. I would say that after S&P we outperformed the market'. The further rate cut by the ECB, decided on Thursday, together with S&P's upgrade, open new market windows for corporate companies and banks wishing to launch bond issues and take advantage of the opportunity to reduce the cost of debt. "The cost of funding is reduced for Snam, although the current situation is worse than three weeks ago. Rates remain high despite the ECB cut because spreads are rising due to uncertainty,' Passa continues. 'If the situation stabilises we could do a dollar issue before the summer, otherwise we will stay in the area and evaluate after the summer. To finance the acquisition in Germany among the eventualities is a new hybrid bond by the end of the year'.