S&P upgrades Tiscali

Standard & Poor's said it raised the long-term corporate credit rating of Tiscali SpA and the €50 million senior secured term loan and €50 million senior secured revolving credit facility of Tiscali U.K. Holdings Ltd. to B+ from B. The term loan has a recovery rating of 3, and the revolver has a recovery rating of 2.

The ratings were removed from CreditWatch, where they were placed with positive implications on Jan. 10, and the outlook is stable.

The agency said the upgrade reflects Tiscali shareholders' virtually complete subscription (97.85%), through pre-emption rights, of the total ordinary shares being offered through the company's rights issue. Proceeds will be used to repay a €150 million bridge facility, thereby reducing leverage.

The ratings continue to be constrained by the group's negative free operating cash flow generation and by high financial leverage, primarily from the acquisition of Pipex Communications plc, S&P said. They are also limited by Tiscali's fairly modest business scale and by continuing investments in its two markets.

The ratings are supported by Tiscali's favorable strategic positioning in the high-growth broadband markets of the United Kingdom and Italy and by S&P's expectation of continuous organic earnings growth, based on Tiscali's strategy of developing its direct customer base through the deployment of full local loop unbundling.

Pro forma for the recent refinancing, the Pipex acquisition and the €150 million rights issue, the adjusted net debt-to-EBITDA ratio was about 4 times at Sept. 30.

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