Poste Italiane S.p.A. -- Moody's downgrades Poste Italiane to Baa2 from A3; outlook negative

Milan, July 16, 2012 -- Moody's Investors Service has today downgraded to Baa2 from A3 the long-term issuer ratings of Poste Italiane SpA ('Poste'). Concurrently, Moody's has downgraded the provisional senior unsecured rating on Poste's EUR2 billion euro medium-term note (EMTN) programme to (P)Baa2 from (P)A3, and affirmed the company's short-term issuer rating at Prime-2. The outlook on all ratings is negative.

Today's action follows the weakening of the Italian government's creditworthiness, as captured by Moody's downgrade of Italy's government bond ratings to Baa2 from A3 on 13 July 2012, and the negative outlook. For more details on the rationale for the sovereign downgrade, please refer to the press release on www.moodys.com.

RATINGS RATIONALE

The two-notch downgrade of Poste's rating in line with that of the Italian government reflects our view that, given its exposure to the difficult macroeconomic situation in Italy and its large portfolio of Italian government bonds, the group's credit quality is strictly correlated to that of the government. This strict correlation also reflects the funds that Poste has deposited with the Italian Ministry of Economy and Finance and the fact that the Italian government is the group's largest customer.

In line with Moody's Government Related Issuer (GRI) Methodology, Poste's Baa2 rating reflects the combination of a baseline credit assessment (BCA) of 9 (Baa2 equivalent), the Baa2 domestic currency rating of the Italian government as well as the group's 'very high' dependence and the rating agency's expectation of 'strong' support from the sovereign. The level of government support built into Poste's rating was reduced to 'strong' from 'high' in light of Moody's view that the government might be more constrained in its ability to provide support.

Although Poste has a relatively robust business risk profile, the group's BCA is constrained by the sovereign rating. The BCA reflects Poste's large exposure to the Italian government and the group's reliance on its financial services division, which is more exposed to the general macroeconomic environment in Italy. Moody's notes that Poste's overall rating is likely, in any case, to remain in line with that of the government.

However, more positively, the BCA also takes into account that, despite the ongoing decline in volumes in its mail division and the liberalisation of the postal market in Italy, Poste has been successful in maintaining stable operating performances thanks to the increasing contribution from its financial services business

Poste's financial ratios as at financial year-end (FYE) December 2011 were broadly in line with a mid-Baa-range rating. However, Moody's notes that these were inflated by repo transactions totalling approximately EUR2.4 billion at the group's BancoPosta division, which the rating agency understands has now largely been repaid. Moody's also notes that in February 2012, the group accessed an additional EUR5 billion of Long Term Refinancing Operations (LTRO) transactions. Poste used the proceeds of the second transaction to pre-finance its reinvestment needs on the portfolio of government bonds over the next three years. Although Moody's anticipates that Poste will reduce the repos over time (as these transactions will mature over the next three years), the rating agency expects the group's key credit metrics to remain relatively weak for the rating category in the meantime.

As at FYE December 2011, Poste reported financial leverage, measured as debt/EBITDA adjusted for pension and operating leases, of 3.1x (compared with 2.1x the previous year) and a retained cash flow (RCF)/debt ratio of 17.5% (23.1%). Metrics at FYE 2011 incorporate a total of EUR2.4 billion of repo transactions that have been largely repaid, albeit Poste contracted the new EUR5 billion of LTRO transactions after year-end, for the above mentioned reasons. In addition, Moody's notes that at the beginning of July 2012, Poste repaid from cash its EUR750 million of senior unsecured notes, which will no longer appear in the group's debt at FYE 2012.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody's could downgrade Poste's issuer rating and lower its BCA following a further downgrade of the sovereign rating. The rating agency could also lower Poste's BCA in the event of a significant deterioration in the group's operating profitability, as indicated by financial leverage, on a debt/EBITDA basis, increasing sustainably above 3.0x and RCF/debt declining below the high teens in percentage terms on an ongoing basis. In addition, Moody's could consider lowering Poste's BCA if the group's free cash flow were to remain negative for a prolonged period of time.

Upside potential on Poste's rating is currently limited by the current sovereign rating, and therefore a potential upgrade of Poste's issuer rating could follow an upgrade of the Italian government rating. Moody's could raise Poste's BCA following an upgrade of the sovereign rating and if the group's RCF/debt ratio increases substantially above 20% and its debt/EBITDA trends towards 2.5x on an ongoing basis, while the company also establishes a track record of positive results at the mail division and achieves positive free cash flow generation.

PRINCIPAL METHODOLOGY

The principal methodology used in rating Poste Italiane S.p.A 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.

Headquartered in Rome, Italy, Poste is the country's leading postal service operator, providing the delivery of mail, as well as express courier, parcel and logistics services in Italy (SDA Express Courier), mass mail printing (Postel) and stamp sales. The company 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 143,000 employees as of December 2011.

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Paolo Leschiutta VP - Senior Credit Officer Corporate Finance Group Moody's Italia S.r.l Corso di Porta Romana 68 Milan 20122 Italy Telephone:+39-02-9148-1100Eric de Bodard MD - Corporate Finance Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Italia S.r.l Corso di Porta Romana 68 Milan 20122 Italy Telephone:+39-02-9148-1100(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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