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Fitch: ECB tightening will test Italian high-yield bond issuers more than others

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Fitch: ECB tightening will test Italian high-yield bond issuers more than others

A re-emergence of market volatility arising from the European Central Bank's imminent monetary policy tightening poses a bigger challenge for Italian high-yield bond issuers than those elsewhere because of their lack of funding alternatives, Fitch Ratings said.

The rating agency said Italian speculative-grade companies, who may want to take a wait-and-see approach to issuance rather than pay a new issue premium, may find themselves forced to become price-takers again due to fewer funding options.

Unlike U.S., U.K. and most European speculative-grade corporates, Italian corporates lack access to speculative-grade leveraged loan markets that offer alternative sources of institutional capital when bond markets are volatile, Fitch noted.

"The Bank of Italy's regulations on non-bank investors have restricted access to the private European term loan B market for Italian issuers, forcing most of them into the public European [high-yield] bond market or expensive private debt markets," the rating agency said.

High-yield bond issuers will be forced to transition away from liability management over the next few years as global financing conditions tighten and the ECB sets a new course on quantitative easing, according to Fitch.

"Consistent operating cash flow growth will therefore be necessary to service debt in the medium to long term as peak coupon conditions recede," Fitch said.

Peter Praet, the ECB's chief economist, said June 6 that the central bank will discuss at its June 14 meeting the possibility of winding down its bond-buying program, which is set to end in September.