Moody's unable to tolerate BT's weaker operating trading figures

Oliver Gill
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BT Sport currently owns the UK rights to show Champions League football (Source: Getty)

A leading ratings agency has cut the outlook of telecoms giant BT after revealing its patience had run out.

On the eve of BT revealing its third quarter trading figures, Moody's changed the group's outlook from stable to negative.

The news comes as another blow to the FTSE 100 firm after it revealed on Tuesday a £530m accounting black hole in its Italian arm and issued a profit warning after poorer than expected trading from some of its core operations.

Read more: BT faces US lawsuits as Italian prosecutors begin probe

"Changing BT's outlook to negative reflects the company's weaker expectations for operating performance over the medium term," said Moody's senior analyst Laura Perez.

So far, we tolerated a higher pension deficit because it was balanced against our expectation of BT's improving operating performance.

However, the profit warning will further delay the deleveraging that we had anticipated.

BT shares were sent in freefall in the wake of the problems in Italy and trading update. Italian prosecutors have launched a criminal investigation and class-action lawsuits have been filed in the US on behalf of shareholders.

And Moody's credit decision this afternoon provides a further challenge for BT, with its cash coffers set to come under pressure on a number of fronts in the coming year.

The telecoms giant is laden with a £9.5bn pension deficit and £9.6bn of debts associated with the group's purchase of mobile phone firm EE.

BT has also pledged to keep its promised of swelling payouts to shareholders by increasing its dividends by 10 per cent each year.

Read more: Italian prosecutors to investigate BT over accounting black hole


Rival agency Fitch cut a more positive tone in a note also issued this afternoon. It concluded there was "no rating impact" from the week's news.

While the accounting revisions in Italy are "significant" Fitch concluded: "BT has headroom within its rating guidelines".

BT declined to comment on the news.

Read more: BT shares dive 19 per cent as it reveals Italy problems will cost it £530m

Meanwhile Kester Mann a senior analyst at CCS Insight pointed out what to look out for in the third quarter numbers.

“Analysts will look for encouraging results from BT’s Consumer and EE divisions in its fiscal 3Q disclosure after a tumultuous week

"BT has hinted a good performance in its consumer-facing businesses, with EE expected to post a year-on-year increase in revenue for the first time. Meanwhile, Openreach is due to reveal its highest ever fibre broadband connections alongside improvements to its often-criticised customer service."

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