Italy

Utility company Snam has converted an existing €3.2bn revolving credit facility into a sustainable deal, joining the growing chorus of southern European firms switching their bank lines for environmental, social and governance-friendly financing alternatives.

A mix of political, economic and market forces is “shaping up to be a perfect storm” for the eurozone debt markets, investors have warned.

Italy’s government bonds rallied to their tightest spreads versus Bunds since the start of the month after S&P opted to hold its rating for the country at BBB, while moving its outlook to negative from stable last Friday. But while there may be some respite for Italy in the weeks ahead, Germany chancellor Angela Merkel’s decision on Monday to step down at the end of her term in 2021 has left analysts fretting about the overall path of the eurozone.

The price of Italian bank shares and bonds rose on Monday morning after local media reported that the government was weighing up extraordinary measures to help the embattled lenders. The next few weeks are crucial for the banks, with the release of stress test results and third quarter earnings.

The European Central Bank made clear on Thursday that it will not be Italy’s doting aunt to the European Commission’s disciplinarian parent after the latter dumped the sovereign on the naughty step by rejecting its budget plans this week. Some investors warned that while Italy’s problems are contained for now, further antagonism between Rome and the eurozone’s authorities raises the risk of a junk rating for Italy and contagion to other markets.

Some investors are betting that Italian government bonds have suffered their worst losses and are hoping S&P will not downgrade the sovereign to junk at the end of this week. That is despite a spat between the Italian government and the European Commission over the former’s budget plans which saw the latter reject an EU member's budget proposal for the first time ever this week.

Italian government bonds took a hit on Tuesday after the European Commission asked the country to send a revised draft of its budget plans. But yields stayed below the 2018 peaks they hit late last week when investors feared that Moody’s could downgrade the sovereign to junk.

Italy replaced €3.8bn of a short dated BTP Italia with longer dated conventional BTPs on Thursday, but against a backdrop where its bond yields were once again on an upward trajectory.

Italy will give investors the chance to swap out of its earliest maturing BTP Italia for longer dated nominal bonds on Thursday as it attempts to reduce the size of the €20.5bn issue. The deal comes amid a calmer backdrop for BTP yields than over the last few months — a factor that helped determine the timing of the exchange, said one of the leads.

In a month where volatility has shot down Europe’s IPO hopefuls, Italian plastics equipment manufacturing firm Piovan has managed to price its deal with an oversubscribed book.

Milanese pharmaceutical firm Recordati was out with its CVC buyout funding this week — a €1.3bn bond, in a European high yield market that has mostly ignored Italy’s political fights. But on Thursday, volatility went global and investors started pressing for concessions. Recordati went ahead regardless, and priced on guidance.

A debut sovereign green bond from Ireland and benchmark from a Spanish agency provided the firmest proof yet that the fiscal stink over Italy’s planned budget deficit has not put investors off other SSAs in the eurozone — even those that until recently were in the same ‘periphery’ bucket as Italy. But bankers are concerned that Italy’s standoff with the European Union has further to run — and that a BTP spread over Bunds of 400bp will be the breaking point.