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See page 28 for full disclosures and analyst certification

Italian Corporate Bonds

Credit View Neutral unchanged

In the corporate sector, we believe that the current credit markets do not reflect the fundamentals of individual companies, especially in the case of Italian names, skewed by sovereign debt contagion risk. Hence in the short term, we recommend a relative value approach, with a preference for names less exposed to Italy country risk because of their broad geographical diversification and/or high financial flexibility. In the IG sector, we stand by our BUY recommendation on ENI, EXOR and Lottomatica bonds, SELL on ACEA, and HOLD on all the other bonds. In the HY sector, we stand by our HOLD recommendation on bonds of all the issuers that we cover.

Cautious credit view on European credit markets. With the global economy slowing, we believe that developments in the European sovereign debt crisis will continue to be the key European credit market driver in 2012. We believe that until investors perceive a clear will among political leaders to structurally resolve the eurozone's problems, the credit markets will continue to feature high uncertainty and volatility, together with low liquidity and high risk aversion. As a result, our view remains cautious and we see no reason to add risk right now, especially on peripheral names.

Credit View Neutral on Italian corporate bonds. We stand by our Credit View Neutral to the Italian corporate bond market, based on our expectation that the overall credit profile will remain almost steady in 2012 for most companies that we cover. In detail, we note that they have adequate liquidity and low refinancing risk in the short term. However, we also note that Italian corporates could be hurt by a deeper than expected recession in Italy, implementation of the fiscal austerity measures, the risk of regulatory changes in regulated industries, and an increase in the cost of refinancing, possibly leading to new rating downgrades on the companies that we cover. In this environment, we expect the best performers in 2012 to be companies that feature broad geographical diversification and/or enjoy high financial flexibility, such as ENI, EXOR, and Lottomatica.

Brilliant 1H12 for the Italian corporate primary market. Volume on the Italian corporate primary market increased 33% yoy in 1H12, with 10 new issues for a total of EUR 9.9Bn, much higher than the EUR 6.4Bn maturing in 2012. We point out, however, that developments in the Italian sovereign debt crisis will continue to shape market access. As a result, bond issuance will be easier for big companies, more capable of containing the cost of funding and quickly taking advantage of windows of opportunity on the market.

Credit Sector Report

28 June 2012 CREDIT VIEW NEUTRAL

Corporate

Intesa Sanpaolo Research Department

Maria Gabriella Tronconi

Credit Analyst +39 02 8794 1117 Credit ratings Moody’s S&P Acea Baa1/N BBB+/N Atlantia A3/S BBB+/N Cir - BB/S Enel Baa1/UR BBB+/N

ENI A2/N A/N

EXOR - BBB+/S

Fiat Ba2/N BB-/S Fiat Industrial Ba1/S BB+/S Finmeccanica Baa2/S BBB-/N Hera Baa1/N BBB+/S Lottomatica Baa3/S BBB-/P Seat PG Ca/UR D Telecom Italia Baa2/N BBB/N Wind B1/S BB-/S Source: rating agencies

Note: Prices in this report are updated at the close of 25.06.2012 (unless otherwise noted).

Investment recommendations on Italian corporate senior bonds

Investment Grade BUY HOLD SELL

ENI Atlantia Acea

EXOR Enel Lottomatica Finmeccanica Hera

High Yield BUY HOLD SELL

Cir Fiat Fiat Industrial Seat Wind Note: No recommendation assigned on Telecom Italia bonds. Source: Intesa Sanpaolo Research.

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Credit Sector Report

28 June 2012

Intesa Sanpaolo Research Department

2

Contents

European credit market

3

A two-speed 1H12 3

2H12 Outlook 4

Italian corporate bond market

5

Performance 1H12 5

Outlook 2H12 6

Italian corporate primary bond market

8

Italian corporate bonds: relative value ideas

10

Company Section

11

ACEA (Moody’s Baa1/Negative, S&P BBB+/Negative, Fitch A-/Negative)

12

 

ATLANTIA (Moody’s A3/Stable, S&P BBB+/Neg., Fitch A-/Stable)

13

 

CIR (S&P BB/Stable)

14

 

ENEL (Moody’s Baa1/under review, S&P BBB+/Stable, Fitch A-/under review)

15

 

ENI (Moody’s A2/Negative, S&P A/Negative, Fitch A+/Stable)

16

 

EXOR (S&P BBB+/Stable)

17

 

FIAT (Moody’s Ba2/Negative, S&P BB-/Stable, Fitch BB/Negative)

18

 

FIAT INDUSTRIAL (Moody’s Ba1/Stable, S&P BB+/Negative)

19

 

FINMECCANICA (Moody’s Baa2/Negative, S&P and Fitch BBB-/Negative)

20

 

HERA (Moody’s Baa1/Negative, S&P BBB+/Stable)

21

 

LOTTOMATICA (Moody’s Baa3/Stable, S&P BBB-/Positive)

22

 

SEAT (Moody’s Ca/under revision for upgrade, S&P D)

23

 

TELECOM ITALIA (Moody’s Baa2/Neg., S&P and Fitch BBB/Neg.)

24

 

WIND (Moody’s B1/Stable, S&P BB-/Stable, Fitch BB/Negative)

25

 

Appendix - Italian Corporate Bonds

26

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Credit Sector Report

28 June 2012

Intesa Sanpaolo Research Department

3

European credit market

A two-speed 1H12

In 1H12 the European credit markets put in an overall positive performance, but a brilliant 1Q12 was almost wiped out by a sickly 2Q12. In detail, in 1Q12 the markets were lifted by two extraordinary 3Y refinancing operations by the ECB which noticeably reduced banks' refinancing risk over the next 1-3 years, especially in the peripheral countries. But in 2Q12 the positive effect wore off and credit spreads once again widened, exacerbated by renewed heightening of the European sovereign debt crisis, mainly due to political problems in Greece and the vulnerabilities of Spanish banks. So investors once again focused on eurozone risk, especially Spain and Italy government debt. The European sovereign debt crisis has been exacerbated by constant political differences over how to manage it and a deterioration in macroeconomic conditions both in Europe, with the beginnings of contagion from the peripheral to the core countries, and in the rest of the world, especially the slowdowns in US and China. In this environment, the markets suffered a return to high uncertainty and sharp credit spread volatility, with investment decisions driven by flight-to-quality.

Nonetheless, year to date, investment grade performance remained positive, with ASW spreads tightening 32bps to 166bps. In detail, financial bonds tightened 68bps to 184bps, supported by the ECB’s LTROs, while industrials underperformed, tightening only 9bps to 154bps. The curve by maturity steepened as the 1-3Y segment outperformed, tightening 47bps to 115bps, and the curve by rating class also steepened, the BBB-AAA spread widened 11bps to 235bps. In the cash segment, furthermore, high yield bonds noticeably outperformed investment grade bonds, with ASW spreads tightening 114bps to 707bps on the Merrill Lynch Euro HY index, led by the CCC and lower rated bonds, which tightened 338bps to 1,299bps, followed by the BB-rated bonds, tightening 100bps to 587bps, and the B-rated bonds, -63bps to 901bps.

Cash IG: corporate, financials and industrials (ASW spreads) ML Euro HY All index, BB, B, CCC (ASW spreads)

0 50 100 150 200 250 300 350 400 06.07 06.08 06.09 06.10 06.11 06.12 IG Industrial IG Financial IG Corporate bps 50 1050 2050 3050 4050 5050 6050 06.07 06.08 06.09 06.10 06.11 06.12 Euro HY MLynch CCC MLynch bps

Source: Intesa Sanpaolo Research calculations on Bloomberg data Source: Intesa Sanpaolo Research calculations on Bloomberg data

But the derivatives sector underperformed the cash sector. In detail, the iTraxx Main index and senior financials were the worst performers: the former widened 10bps to 179bps and the latter 26bps to 291bps on the 5Y. In contrast, the iTraxx Crossover index was the best performer, tightening 31bps to 706bps on the 5Y, followed by the subordinate financials, tightening 20bps to 472bps on the 5Y. Finally, across the iTraxx indices we notice that the short-end of the curve outperformed, allowing the Crossover curve to flatten, but it is still slightly inverted.

1Q12 sustained by the ECB's two LTROs, but 2Q12 blind-sided by return of risk aversion

Year-to-date performance still positive, despite the retreat in 2Q12

Derivates sector underperformed cash

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Credit Sector Report

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Intesa Sanpaolo Research Department

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5Y SovX WE, Main, Crossover indices 5Y Main, senior and subordinate financials indices

-10 140 290 440 590 740 890 10.09 06.10 02.11 10.11 06.12

bps SovX WE Main Crossover

0 100 200 300 400 500 600 700 10.09 06.10 02.11 10.11 06.12

bps SovX WE Sen Fin Sub Fin

Source: Intesa Sanpaolo Research calculations on Bloomberg data Source: Intesa Sanpaolo Research calculations on Bloomberg data

2H12 Outlook

In our view, the outlook for the European credit markets in 2012 is mixed, with two factors having an offsetting impact: fundamental factors with a negative impact, technical factors with a positive impact. In detail, as for the fundamentals, our economists forecast deterioration in the macroeconomic environment, with a modest recession in the eurozone and a deeper recession in the peripheral countries, including Italy. In this environment, Moody’s forecasts an increase in default rates from 1.7% to 2.7% under its baseline scenario and 4.5% under its pessimistic scenario, and an increase in the number of downgrades, as reflected in the deterioration in rating drift and the distressed index. Finally, though corporate earnings growth forecasts for Europe call for 8.5% on an adjusted EpS basis on the EuroStoxx 300, downward revisions are very likely in the coming months in the wake of what already happened in 2011.As a result, these factors could have a negative impact on corporate fundamentals, though they appear more solid compared to the previous financial crisis in 2008-09 (higher liquidity and lower refinancing risk in the short term).

In contrast, the technical factors could provide greater support to the bond markets, namely the ECB’s accommodating monetary policy, the sharp increase in the net issuance of corporate bonds from EUR 5.2Bn to EUR 17.5Bn in 1H12, and the currently wide spreads which discount a pessimistic scenario (11.8% implicit default rate in the Crossover with a 40% recovery rate assumption).

With the global economy slowing, we believe that developments in the European sovereign debt crisis will continue to be the key European credit market driver in 2H12. We believe that until investors perceive a clear will among political leaders to structurally resolve the eurozone's problems, the credit markets will continue to feature high uncertainty and volatility, together with low liquidity and high risk aversion. As a result, our view remains cautious and we see no reason to add risk right now, especially on peripheral names. Hence we expect the more risky assets to underperform the more defensive ones: peripheral country corporate bonds vs. core country corporate bonds; derivatives vs. cash; HY bonds vs. IG bonds; financials vs. non-financials; and subordinate financials vs. senior financials. However, we do not rule out a short-lived relief rally, triggered by short-covering and driven by the more risky assets classes, in case of good news from the macro data and/or political events.

Fundamental drivers worsening

Positive technical factors

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Credit Sector Report

28 June 2012

Intesa Sanpaolo Research Department

5

Italian corporate bond market

Performance 1H12

In 1H12 the main Italian corporate bonds continued to underperform their European competitors due to renewed tensions on Italian sovereign debt starting in March. In terms of 5Y CDS, all Italian IG issuers underperformed the Main Euro 5Y index (10bp wider to 179bps). In addition only Telecom Italia (widening 33bps to 513bps) and ENI (widening 36bps to 214bps), overperformed the Italian 5Y CDS (37bps wider to 529bps), due to good 1Q12 results and, for ENI only, expectations of de-leveraging following the agreement to sell its 30% stake in Snam to Cassa Depositi e Prestiti. In contrast, ENEL was the worst performer, widening 131bps to 466bps, due to its high exposure to Italy and Spain sovereign risk and pressure on electricity generation margins. Also the 5Y CDS of Atlantia widened 98bps to 370bps, due to high exposure to Italy country risk, reflected in the sharp decrease in traffic volume in 1Q12 due to Italy’s economic recession.

Change in 5Y IG corporate CDS vs. Main Europe in 2012 (bps) Current IG corporate 5Y CDS (bps)

Main Telecom IT ENI Italy Atlantia ENEL 0 50 100 150 179 214 370 466 513 529 0 100 200 300 400 500 600

Main ENI Atlantia ENEL Telecom Italy

Source: Intesa Sanpaolo Research calculations on Bloomberg data Source: Intesa Sanpaolo Research calculations on Bloomberg data Finally, it is worth emphasising that right now Italy's 5Y CDS (Moody's A2/negative, S&P

BBB+/negative) is still higher than that of the main Italian IG corporates, except Finmeccanica (Moody’s Baa2/stable, S&P BBB-/negative), which became part of the Crossover index as of March 2012.

In the HY sector, we note that only Wind and CIR underperformed the Crossover index (31bps tighter to 706bps), with Wind the worst performer, widening 192bps, due to its total operating exposure to Italy sovereign risk. In contrast, Fiat Industrial was the best performer, tightening 295bps to 524bps, attributable to strong fundamentals and the potential merger with CNH into a new Netherlands-law company listed on the NYSE. Finally, we note that all Italian HY companies have 5Y CDS higher than the Crossover, except Fiat Industrial which discounts an upgrade into investment grade territory.

Change in 5Y HY corporate CDS vs. Crossover in 2011 (bps) Current HY corporate 5Y CDS (bps)

Fiat Industrial Finmeccanica Fiat X-Over CIR Wind -500 -400 -300 -200 -100 0 100 200 300 524 600 706 938 960 1463 0 200 400 600 800 1000 1200 1400 1600

Fiat Ind. Finmeccanica X-over CIR Fiat Wind

Source: Intesa Sanpaolo Research calculations on Bloomberg data Source: Intesa Sanpaolo Research calculations on Bloomberg data

Renewed tensions in 2Q12 on the Italian sovereign debt

Italy 5Y CDS still wider than main Italian IG corporates

Fiat Industrial outperforms by far

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Credit Sector Report

28 June 2012

Intesa Sanpaolo Research Department

6

Outlook 2H12

We stand by our Credit View Neutral on the Italian corporate bond market based on our expectation that the overall credit profile will remain steady in 2012 for most companies that we cover (eight Credit View Neutral, three Negative, two Positive). In detail, we note that they on average they have adequate liquidity, and low refinancing risk in the short term, in part reflected in the fact that bond maturity volume in 2012 is 24% lower at EUR 6.4Bn.

Credit View on issuers covered

Investment grade Positive Neutral Negative

ENI Atlantia Acea

Lottomatica Enel Finmeccanica

EXOR Hera

High Yield Positive Neutral Negative

Cir Seat

Fiat

Fiat Industrial

Wind Note: Credit View on Telecom Italia is not assigned. Source: Intesa Sanpaolo Research.

However, we point out that Italy's GDP is forecast to sharply contract in 2012, and Italian corporates could be adversely affected by fiscal austerity measures, with a probable increase in the tax rate, a decrease in consumer demand, and higher risk of regulatory changes in regulated industries, especially utilities, motorways, and telecommunications. It is also worth emphasising the negative impact of the increase in the cost of refinancing due to the renewed tensions on Italian government debt and application of increasingly tighter lending standards by Italian banks. So the rating agencies could further downgrades the ratings of the companies that we cover, especially those more highly exposed to Italy sovereign risk since their revenues are concentrated in Italy and/or their businesses are in regulated industries, hence more exposed to risk of changes to current regulations.

Strengths Weaknesses

 Adequate liquidity.

 Low refinancing risk in short term.

 Technical factors supportive (sharp increase in net issuance in 1H12, smaller amount of bond maturities in 2012, and very wide credit spreads).

 Italian recession worse than forecast in 2012.

 Regulatory risk and increase in tax rate.

 Higher refinancing costs, triggered by sovereign debt crisis and tighter lending standards applied by banks.

 Pressure on ratings of companies more exposed to Italy country risk.

In our view, then, the main drivers of Italian corporate bond performance in 2012 are still: i) low exposure to Italy country risk (broad geographical diversification and/or presence in non-regulated businesses; ii) high financial flexibility (low refinancing risk, positive FCF, and de-leveraging targets).

In the IG sector, our best picks are ENI, EXOR, and Lottomatica. In detail, ENI has modest sovereign risk exposure, broad geographical diversification, and a high possibility to de-leverage after selling its equity stake in Snam. We also stand by our BUY recommendation on EXOR and Lottomatica bonds based on their still attractive spreads and high financial flexibility. Finally, we note that EXOR has low exposure to Italy country risk, and Lottomatica is committed to further de-leveraging as the gaming sector holds up very well in Italy.

In contrast, we stand by our SELL recommendation on Acea bonds because of pressure to downgrade its ratings due to Italy sovereign risk exposure and the ongoing deterioration in its fundamentals. Finally, we stand by our HOLD recommendation on the bonds of all the other

Adequate liquidity and low refinancing risk in short term

Possible new

downgrades due to Italy country risk exposure

2012 driver: low exposure to sovereign risk and high financial flexibility

Best pick: ENI, EXOR, Lottomatica

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Credit Sector Report

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Intesa Sanpaolo Research Department

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issuers that we cover because we believe that current spreads correctly reflect risks due to Italy sovereign risk exposure and/or fundamentals performance.

Investment recommendations on Italian corporate senior bonds

Investment Grade BUY HOLD SELL

ENI Atlantia Acea

EXOR Enel Lottomatica Finmeccanica Hera

High Yield BUY HOLD SELL

Cir Fiat Fiat Industrial Seat Wind Note: No recommendation assigned on Telecom Italia bonds. Source: Intesa Sanpaolo Research.

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Credit Sector Report

28 June 2012

Intesa Sanpaolo Research Department

8

Italian corporate primary bond market

The Italian corporate primary market was brilliant in 1H12, with 10 new issues for a total of EUR 9.9Bn, up 33% on 1H11, by far exceeding the EUR 6.4Bn maturing in 2012. However, we note that bond market access is still shaped by the new heightening of tensions on Italian sovereign debt. As a result, the biggest and most well-known companies managed to issue in 1H12 because of the greater capacity to contain the cost of funding and quickly take advantage of windows of opportunity on the market. In detail, only Luxottica managed to issue in 1H12, along with the frequent issuers, including Atlantia, ENEL, ENI, Fiat, Telecom Italia and Terna.

Italian IG and HY corporate bond issuance/maturities (EUR Bn) Italian corporate bond maturities in 2009-2014 (EUR Bn)

15.0 7.4 9.9 8.3 6.4 0 2 4 6 8 10 12 14 16 1H11 1H12

FY11 FY11 FY12

Gross Maturity 5.4 5.6 8.3 6.4 6.2 10.7 0 2 4 6 8 10 12 2009 2010 2011 2012 2013 2014

Source: Intesa Sanpaolo Research calculations on Bloomberg data Source: Intesa Sanpaolo Research calculations on Bloomberg data

In our view, the health of the Italian corporate primary market in 2H12 still depends on developments in the European sovereign risk crisis and especially the risk of contagion from the Italian government debt crisis. Moreover, the ongoing recession could trigger a decline in business investment spending, in turn leading to a reduction in refinancing requirements. Finally, we note that, on average, the Italian companies under our coverage have adequate liquidity and low refinancing risk in the short term, as also reflected by the lower amount of bonds maturing in 2012-2013 compared with 2011. As a result, Italian corporates that we cover will have less need to tap the bond market in 2012.

However, it is worth emphasising that increasing bank disintermediation could be a valid support factor for the Italian corporate primary market because Italian banks will be forced to reduce their assets in view of recapitalisation requirements imposed by the new Basel III rules and the EBA which will have a deeper impact on companies with HY ratings. We also point out that the bigger companies are tending to reduce their dependency on the banking system, preferring to tap the bond market for the dual purpose of further diversifying their sources of financing and to lengthen average debt duration. Hence we expect the big corporates to continue to tap the bond market, with possible pre-refunding of 2013-2014 maturities, taking advantage of windows of opportunity. Another potentially growing trend among Italian corporates, even unrated, is private placements abroad, thanks to high brand recognition and broad geographical diversification (Barilla, Luxottica, and Piaggio made private placements in the US in 2011), also in order to diversify debt denomination (USD, JPY, CHF) to protect against the risk of a euro break-up.

Sharp rebound in 1H12

2H12 outlook favourable if Italian government debt tensions ease Support factors: increasing bank disintermediation and possible pre-refunding of 2013-2014 maturities

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Bonds issued by Italian corporates in Euro in 1H12 (only institutional)

Launch date Issuer EUR M Coupon (%) Maturity Spread at issue*

Jan.27 ENI 1,000 4.25 02.03.20 220

Feb.02 Atlantia 1,000 4.5 02.08.19 275

Feb.03 Enel 500 floater 02.20.18 310

Feb.13 Terna 1,250 4.125 02.17.17 257

Feb.16 Enel 2,500 4.875 02.20.18 310

Mar.12 Luxottica 500 3.625 03.19.19 185

Mar.20 Fiat Finance & Trade 850 7.0 03.23.17 594

Jun.11 Telecom IT 750 6.125 14.12.18 473

Jun.11 Telecom IT 750 4.625 15.06.15 378

Jun.20 ENI 750 3.75 27.06.19 215

Notes: 1) For fixed bond, spreads over MID Swap at launch, 2) Floaters = floater spreads. Issues classified by Thomson as: “Government and Agencies” are excluded; only issues amounting to a minimum of EUR 100M are included; Source: Intesa Sanpaolo elaboration on Thomson One/Bloomberg data

Italian Corporate bonds denominated in euro maturing in 2012

Name Country EUR M Coupon (%) Maturity

ENEL (ENTNZENEL) IT 400 floater (M) 14.03.2012

ENEL (ENTNZENEL) IT 600 3.625 (M) 14.03.2012

FIAT FIN & TRADE LX 1,250 9.000 30.07.2012

FIAT FIN & TRADE LX 200 5.750 18.12.2012

POSTE ITALIANE IT 750 5.250 (M) 03.07.2012

TELECOM ITALIA IT 1,250 6.250 (M) 01.02.2012

TELECOM IT FIN LX 108 floater (M) 14.03.2012

TELECOM IT FIN LX 813 7.250 (M) 24.04.2012

TELECOM ITALIA IT 1,000 floater 06.12.2012

Note: M=matured. Source: Intesa Sanpaolo elaboration on Bloomberg data (only issues amounting to a minimum of EUR 50M are included)

Italian Corporate bonds denominated in euro maturing in 2013

Name Country EUR M Coupon (%) Maturity

AEM SPA IT 500 4.875 30.10.2013

DOLOMITI ENERGIA IT 97 3.467 20.12.2013

ENEL SOC AZIONI IT 750 4.250 12.06.2013

ENI SPA IT 1.500 4.625 30.04.2013

HERA SPA IT 140 1.750 01.10.2013

IMPREGILO INTL NE 150 floater 26.11.2013

SAFILO CAP INTL LX 135 9.625 15.05.2013

TELECOM FIN. ITALIA LX 759 6.875 24.01.2013

TELECOM ITALIA IT 650 6.750 21.03.2013

TELECOM ITALIA IT 500 floater 19.07.2013

Source: Intesa Sanpaolo elaboration on Bloomberg data (only issues amounting to a minimum of EUR 50M are included)

Italian Corporate bonds denominated in euro maturing in 2014

Name Country EUR M Coupon (%) Maturity

ACEA SPA IT 300 4.875 23.07.2014

ASM BRESCIA IT 500 4.875 28.05.2014

ATLANTIA IT 2,750 5.000 09.06.2014

EDISON SPA IT 700 4.250 22.07.2014

ENEL (ENTNZENEL) IT 1,000 floater 20.06.2014

ENI SPA IT 1,250 5.875 20.01.2014

GRUPPO ESPRESSO IT 274 5.125 27.10.2014

TELECOM ITALIA IT 500 7.875 22.01.2014

TELECOM ITALIA IT 673 4.750 19.05.2014

TERNA SPA IT 600 4.250 28.10.2014

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Credit Sector Report

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Intesa Sanpaolo Research Department

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Italian corporate bonds: relative value ideas

We believe that the current credit markets do not reflect the fundamentals of individual companies, especially in the case of Italian names, skewed by sovereign debt contagion risk. Hence in the short term, we recommend a relative value approach, with a preference for names less exposed to Italy country risk because of their broad geographical diversification and high financial flexibility. In the IG sector, we stand by our BUY recommendation on ENI, EXOR and Lottomatica bonds, SELL on ACEA, and HOLD on all the others. In the HY sector, we stand by our HOLD recommendation on bonds of all the issuers that we cover. Finally, we maintain open our relative value recommendations (see table) on the different bonds of the same issuer in view of existing spread misalignments along the maturity curve.

Investment ideas

Date Bond/CDS Type Spread Rate Buy/

Sell Entry level Current level1Pick-up Status

Utility

06.21.12 ATLIM 4 1/2 02.08.19 Sen ASW FX BUY 345.1 353.3 -8.2 OPEN We recommend buying ATLIM 02/19 and selling ATLIM 06/24 bonds, given the curve inversion despite 5-yr shorter tenor.

ATLIM 5 7/8 06.09.24 Sen ASW FX SELL 338.2 347.1 8.9

0.7

01.12.12 ENIIM 4 7/8 10.11.17 Sen ASW FX BUY 284.6 259.5 25.2 OPEN We recommend buying ENI 10/17 bond and selling ENI 01/18 bonds, due to higher ASW spread and higher YTM of the former, despite shorter maturity.

ENIIM 3 1/2 01.29.18 Sen ASW FX SELL 179.1 194.0 14.9

40.0

11.24.11 ENIIM 4 7/8 10.11.17 Sen ASW FX BUY 269.5 259.5 10.1 OPEN We recommend buying ENI 10/17 bond and selling ENI 11/17 bond, due to higher ASW spread, higher YTM and lower price of the former, despite same maturity.

ENIIM 4 3/4 11.14.17 Sen ASW FX SELL 199.2 190.6 -8.5

1.5

High Yield

03.22.12 FIAT 7 03.23.17 Sen ASW FX BUY 527.0 636.8 -109.8 OPEN We recommend buying the Fiat 03/17 bond and selling Fiat 06/17 bond, given the higher ASW spread and YTM, despite similar maturity.

FIAT 5 5/8 06.12.17 Sen ASW FX SELL 426.7 513.1 86.4

-23.5

02.22.12 FIAT 7 3/8 07.09.18 Sen ASW FX BUY 587.8 643.8 -55.9 OPEN We recommend buying Fiat 07/18 bond and selling Fiat 06/17 bond, given the much higher ASW spread and YTM of the former that more than compensate the 1 year maturity extension. FIAT 5 5/8 06.12.17 Sen ASW FX SELL 450.5 513.1 62.5

6.6

10.27.11 FIAT 6 3/8 04.01.16 Sen ASW FX BUY 647.3 626.0 21.2 OPEN We recommend buying Fiat 04/16 bond and selling Fiat 06/2017 bond, given the higher ASW spread and YTM, despite shorter maturity. FIAT 5 5/8 06.12.17 Sen ASW FX SELL 534.0 513.1 -21.0

0.3

Note: FX = fixed rate. 1) "Current level" at the open of 27.06.2012. Source: Intesa Sanpaolo Research elaboration on Bloomberg data

Pursue relative value ideas in a difficult market environment

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Company Section

 

ACEA (Moody’s Baa1/Negative, S&P BBB+/Negative, Fitch A-/Negative)

12

 

ATLANTIA (Moody’s A3/Stable, S&P BBB+/Neg., Fitch A-/Stable)

13

 

CIR (S&P BB/Stable)

14

 

ENEL (Moody’s Baa1/under review, S&P BBB+/Stable, Fitch A-/under review)

15

 

ENI (Moody’s A2/Negative, S&P A/Negative, Fitch A+/Stable)

16

 

EXOR (S&P BBB+/Stable)

17

 

FIAT (Moody’s Ba2/Negative, S&P BB-/Stable, Fitch BB/Negative)

18

 

FIAT INDUSTRIAL (Moody’s Ba1/Stable, S&P BB+/Negative)

19

 

FINMECCANICA (Moody’s Baa2/Negative, S&P and Fitch BBB-/Negative)

20

 

HERA (Moody’s Baa1/Negative, S&P BBB+/Stable)

21

 

LOTTOMATICA (Moody’s Baa3/Stable, S&P BBB-/Positive)

22

 

SEAT (Moody’s Ca/under revision for upgrade, S&P D)

23

 

TELECOM ITALIA (Moody’s Baa2/Neg., S&P and Fitch BBB/Neg.)

24

 

WIND (Moody’s B1/Stable, S&P BB-/Stable, Fitch BB/Negative)

25

 

 

Note: Meris Tonin (tel. 02/8794 1119) compiled the Acea, Enel and Hera

snapshots; Melanie Gavin (tel. 02/8794 1118) compiled the Seat, Telecom Italia

and Wind snapshots.

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ACEA (Moody’s Baa1/Negative, S&P BBB+/Negative, Fitch A-/Negative)

EBITDA breakdown (2011) Trend in profitability

Regulated 90% Not regulated 10% 20.2% 19.8% 19.0% 18.5% 18.5% 18.1% 11.4% 12.2% 6.3% 8.8% 6.3% 8.2% 3% 6% 9% 12% 15% 18% 21% 24% 2007 2008 2009 2010 2011 1Q12

EBITDA margin EBIT margin

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendation

Credit View Negative. We maintain a Credit View Negative on ACEA in view of its poor financial profile, ongoing tariffs uncertainty in the water industry, and exposure to Italy country risk since the company's operations are almost exclusively domestic.

Ratings under pressure. The most recent action was an S&P downgrade to BBB+ in March, aligning it with Italy's rating, outlook negative, the same as the City of Rome (main shareholder with 51%), due to its weakening financial profile.

Market focus. We maintain a SELL recommendation on ACEA bonds because of high regulatory risk and its poor financial profile, aggravated by the deterioration in Italy's economy.

Strengths Weaknesses

 One of Italy’s biggest multi-utilities and leader in the Italian water industry.

 High cash flow visibility, driven by heavy contribution from regulated businesses (around 90% of total business in 2011).

 Almost total business exposure to Italy.

 Increase leverage due to higher net working capital needs.

 High tariffs uncertainty in water division (around 50% of EBITDA), after referendum result.

 High dividend pay-out and high exposure to public sector customers.

Leverage trend (x) Debt repayment schedule at 31.12.2011 (EUR M)

2.5 2.6 3.4 3.3 3.8 3.9 4.5 3.5 8.3 5.3 7.2 7.5 1 2 3 4 5 6 7 8 9 2007 2008 2009 2010 2011 1Q12

Net debt/EBITDA Net debt/FFO

0 500 1,000 1,500

2012 2013 2014 2015 >2015

Bank debt Bond

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ATLANTIA (Moody’s A3/Stable, S&P BBB+/Neg., Fitch A-/Stable)

Revenues by geographical area (2011) Trend in profitability

Italy 95.5% Abroad 4.5% 60.8% 61.3% 61.0% 60.0% 62.1% 46.5% 47.8% 47.1% 44.7% 49.1% 0% 10% 20% 30% 40% 50% 60% 70% 2008 2009 2010 2011 1Q12

EBITDA margin EBIT margin

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendation

Credit View Neutral. Atlantia’s 1Q12 results deteriorated due to a fall in traffic volume in Italy, and the company expects leverage to slightly increase in 2012. Nonetheless, we stand by our Credit View Neutral on Atlantia based on the higher contribution expected from its foreign concessionaires and low refinancing risk until 2015. But we point out that Atlantia is highly exposed to Italy country risk (83% of EBITDA estimated in 2012), with potential negative fallout due to possible industry regulatory changes or further deterioration in macroeconomic conditions in Italy with a negative impact on traffic volume.

S&P's rating under pressure. S&P’s negative outlook reflects the possibility of a further downgrade if it further downgrades Italy’s BBB+/negative rating or country risk continues to increase, triggering a deeper contraction in traffic volume in Italy than S&P currently forecasts. On the other hand, Fitch and Moody’s maintain a stable outlook, despite their negative outlook on Italy's A-/A3 rating, reflecting the possibility that Atlantia's rating is higher than the sovereign rating.

Market focus. We stand by our HOLD recommendation on Atlantia bonds in view of its high operating exposure to Italy country risk.

Strengths Weaknesses

 Autostrade per l’Italia concession (84% of 2011 consolidated EBITDA) does not expire until 2038.

 Low refinancing risk until 2015.

 Increase in tariffs in 2012.

 High concentration in Italy (96% of 2011 revenues and EBITDA).

 Recession in Italy weighs on traffic volume.

 Regulated industry, exposed to risk of changes.

 High planned investment limits possibility of de-leveraging.

Leverage trend (x) Net Debt Repayment Schedule (EUR Bn, 31.03.12)

4.4 4.6 4.3 3.8 3.9 7.2 7.6 6.9 5.2 5.5 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 2008 2009 2010 2011 1Q12

Net debt/EBITDA Net debt/FFO

0.0 0.5 1.0 1.5 2.0 2.5 3.0 2012 2014 2016 2019 2024 > 2025

Bank debt Bond Other

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CIR (S&P BB/Stable)

CIR Group: Revenues by division (2011) CIR Group: trend in profitability (%)

Sorgenia 46.9% Espresso 19.7% Sogefi 25.6% Kos 7.7% 10.7% 12.0% 9.8% 6.9% 8.6% 10.4% 8.0% 8.2%9.1% 6.8% 3.5% 4.6% 5.7% 3.8% 0% 2% 4% 6% 8% 10% 12% 14% 2006 2007 2008 2009 2010 2011 1Q12

EBITDA margin EBIT margin

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view and rating

Credit View Neutral. Though the 1Q12 results show deterioration and the outlook for Sorgenia and L’Espresso in 2012 is dim, we stand by our Credit View Neutral on CIR because of its very low medium-term refinancing risk and its holdings' high liquidity.

Stable ratings. We expect stable ratings in the short term. According to S&P, it depends on whether CIR can keep its loan-to-value ratio below 20%. S&P as well does not take into account the compensation payment received from Fininvest in its rating.

Market focus. We stand by our HOLD recommendation on the CIR 2024 bond in view of its high recovery rating (more than 70% according to S&P) and the expected Supreme Court ruling on the EUR 564M damage award received from Fininvest, expected in the next12-18 months.

Strengths Weaknesses

 Low refinancing risk in medium term.

 Investment portfolio diversified by industry.

 Possible confirmation of compensation payment from Fininvest.

 Weak quality of main portfolio investments.

 Sorgenia’s high leverage.

 Appetite for risk and investment in start-ups.

CIR Group: Leverage trend (x) CIR Holdings: Net financial position at 31.03.12 (EUR M)

1.9 2.6 3.7 6.1 5.4 5.0 5.5 0.4 0.7 0.8 0.8 0.9 0.9 1.0 0 1 2 3 4 5 6 7 2006 2007 2008 2009 2010 2011 1Q12

Net debt/EBITDA Net debt/equity

0 100 200 300 400 500 600 700 800 900

Liquidity Fin. debts NFP

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ENEL (Moody’s Baa1/under review, S&P BBB+/Stable, Fitch A-/under review)

EBITDA by geographical area (YE11) Trend in profitability

Italy 40% Spain 23% Latin America 18% EGP 9% Holding 1% International 9% 21.6% 22.5%23.4% 25.4% 23.8%22.3% 20.3% 15.0% 15.5%15.6% 17.1% 15.3% 14.3% 13.7% 10% 14% 18% 22% 26% 30% 2006 2007 2008 2009 2010 2011 1Q12

EBITDA margin EBIT margin

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendation

Credit View Neutral. Despite high operating exposure to Italy and Spain (around 63% of total EBITDA), we stand by our Credit View Neutral on Enel because of the new business plan’s focus on strengthening capital and its high percentage of regulated operations (around 50% of total EBITDA).

Ratings under pressure. Moody’s has put its Baa1 rating under review for a possible downgrade as part of its review of utility companies with significant exposure to Spain (Endesa accounts for around 23% of consolidated EBITDA). If Moody’s further downgrades Spain, currently Baa3/under review, it could cut Enel's rating, but limited to one notch. Back in March, S&P also downgraded Enel’s rating after it downgraded Italy’s rating to BBB+/neg., but its outlook is stable.

Market focus. Despite high exposure to Italy and Spain country risk, we stand by our HOLD recommendation on Enel bonds in view of its focus on de-leveraging and in expectation of assessing the negative impact of new regulatory measures by the Spanish government aimed at reducing the electricity tariff deficit.

Strengths Weaknesses

 Low refinancing risk until 2014.

 Stable cash flow from a defensive business mix (50% of revenues from regulated businesses).

 Good geographical diversification with increasing exposure to high growth potential countries in Latin America.

 Focus on strengthening capital and de-leveraging.

 High exposure to Italy and Spain (63% of EBITDA).

 High regulatory risk in Spain linked to resolution of electricity tariff deficit.

 Moody’s and Fitch may downgrade Enel’s rating.

 Narrower margins in electricity generation in Italy and Spain.

Leverage trend (x) Debt repayment schedule at 31.12.11 (EUR Bn)

5.7 3.5 3.1 2.6 2.5 2.6 9.1 4.8 5.1 4.1 4.0 4.1 0 1 2 3 4 5 6 7 8 9 10 2007 2008 2009 2010 2011 1Q12

Net debt/EBITDA Net debt/FFO

0 5 10 15 20 25 2012 2013 2014 2015 2016 > 2016 Endesa Enel

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ENI (Moody’s A2/Negative, S&P A/Negative, Fitch A+/Stable)

Revenues by geographical area (2011) Trend in profitability

Italy 31% Rest of Europe 39% America 9% Africa 9% Asia 10% Other 2% 29.1% 27.6% 27.3% 24.9% 26.3% 20.0% 15.8% 17.6% 16.4% 19.3% 0% 5% 10% 15% 20% 25% 30% 35% 2008 2009 2010 2011 1Q12

EBITDA margin EBIT margin

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendations

Credit View Positive. In the wake of the agreement to sell its 30% stake of Snam to CDP, ENI’s credit profile is set to improve in view of de-leveraging and its focus on E&P operations where the outlook is very favourable because of recent significant oil & gas discoveries. After the sale of Snam, ENI will also benefit from lower exposure to Italy country risk, though it will give up stable and predictable income (10% of 2011 EBITDA).

Rating at risk. S&P’s negative outlook reflects the possibility of a further downgrade of ENI’s rating if Italy’s is downgraded further since in S&P’s methodology the two ratings cannot differ by more than two notches. Moreover, S&P could cut ENI’s rating if FCF after dividends is lower than expected (around EUR -1.0/-2.4Bn), or FFO/net debt is 50%. Moody’s negative outlook reflects ENI’s poor liquidity in a deteriorating economic and financial environment. In contrast, Moody’s could upgrade its outlook on ENI to stable if the company increases liquidity and/or achieves a 40% RCF/net debt ratio and a 35% gross debt/total capital ratio.

Market focus. We stand by our BUY recommendation on ENI bonds because the spreads are still attractive and the company continues to de-leverage. However, we also recommend opening relative value and not outright positions because we expect peripheral corporate bonds to remain under pressure due to risk of contagion risk from Italian sovereign debt.

Strengths Weaknesses

 Strong position in E&P sector, very profitable.

 Good position in G&P sector in Europe.

 Favourable oil price trend.

 De-leveraging expected after sale of Snam and Galp.

 E&P division increasingly dependent on high risk non-OECD countries (52% of EBIT in Africa).

 Some exposure to Italy country risk (31% revenues and 9% EBIT in 2011).

 Poor performance in the gas, refining, petrochemicals divisions.

Leverage trend (x) Debt repayment schedule at 31.12.11 (EUR M)

0.6 1.0 1.0 1.0 1.0 0.9 1.9 1.6 1.7 1.4 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2008 2009 2010 2011 1Q12

Net debt/EBITDA Net debt/FFO

0 2 4 6 8 10 2012 2013 2014 2015 2016 > 2016

Bank debt Bond & CP Other

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EXOR (S&P BBB+/Stable)

NAV of top four investments by geographical area (2011) Breakdown of NAV by equity investment (prices at 25.06.12)

Nafta 33% Europe 38% Other 29% Fiat 20.2% Fiat Industrial 38.2% SGS 24.5% Cushman & Wakefield 6.8% Treasury shares 4.0% Other 6.3%

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendations

Credit View Neutral. We stand by our Credit View Neutral on EXOR based on its mixed performance in 1Q12, cautious but still positive outlook for 2012, and high financial flexibility. Our view on EXOR is closely linked to our views on Fiat and FI, EXOR’s main investments (around 58.4% of NAV), on which we maintain a Credit View Neutral.

Stable rating. S&P’s stable outlook reflects management's prudent investment policy, its long-term strategy, and low tolerance for increasing leverage, allowing EXOR to keep its loan-to-value ratio below 20% in recent years, despite high equity market volatility. In addition, S&P believes that the Fiat Industrial spin-off from Fiat has improved the EXOR investment portfolios’ diversification, liquidity, and stability.

Market focus. We stand by our BUY recommendation on the EXOR 2017 bond based on its attractive spreads and low refinancing risk until 2017.

Strengths Weaknesses

 One of Europe’s major investment holding companies.

 Investment portfolio highly liquid (listed companies comprise 84.5% of NAV).

 Low refinancing risk until 2017.

 Conservative investment and financial policy.

 Investment portfolio not broadly diversified, though improved after the Fiat Industrial spin-off from Fiat.

 Cyclical businesses, exposed to economic slowdown, especially in Europe.

 Possible negative impact as Fiat’s and Chrysler’s credit profiles converge.

NAV breakdown by listed and unlisted investments Holding System: Debt repayment schedule at 31.03.12 (EUR M)

Listed 84.5% Unlisted 15.5% 0 200 400 600 800 2012 2016 2017 2031

Bank debt Bond Other

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FIAT (Moody’s Ba2/Negative, S&P BB-/Stable, Fitch BB/Negative)

Revenues by geographical area (2011) Trend in profitability

Italy 15% Rest of Europe 21% Nafta 36% Mercosur 19% Other 9% 8.5% 9.2% 10.5% 9.4% 2.3% 3.1% 5.7% 4.3% 0% 2% 4% 6% 8% 10% 12% 2009 2010 2011 1Q12

EBITDA margin EBIT margin

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendation

Credit View Neutral. We expect Fiat’s credit profile to mostly hold steady in 2012 as Chrysler's performance continues to improve in North America which should offset Fiat's sharp deterioration in Europe (2012 targets at risk). Fiat will probably increase its equity stake in Chrysler by 3.3% to 61.8% for around USD 200M in July, but with EUR 12Bn in liquid assets we expect no impact on its credit profile.

Ratings under pressure. We do expect S&P to leave Fiat's and Chrysler's ratings unchanged, though Moody's and Fitch could downgrade Fiat’s ratings due to execution risks on the Chrysler integration plan and Fiat's growing challenges in its main markets, Italy and Brazil. But Moody’s could upgrade Chrysler’s rating one notch (currently B2/positive).

Market focus. We stand by our HOLD recommendation on Fiat bonds in view of still attractive spreads and no refinancing risk until 2015 on a stand-alone basis, though Fiat's stand-alone performance is expected to deteriorate in 2012.

Strengths Weaknesses

 Leader in Italy and Brazil.

 Strong position in small car segment with low fuel consumption.

 Broader geographical and production diversification with the acquisition of Chrysler.

 No refinancing risk until 2015 for Fiat and 2016 for Chrysler on a stand-alone basis.

 Highly dependent on Italy and Brazil.

 Revenues concentrated in small car segment.

 Car market expected to remain sluggish in Italy and Europe, little presence in Asia.

 2012-2014 targets at risk in Europe.

 Moody’s and Fitch may downgrade Fiat’s rating.

Trend in leverage of Industrial division (x) Net Debt Repayment Schedule (EUR Bn, 31.03.12)

0.3 0.2 1.0 0.9 0.2 1.5 1.3 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 2009 2010 2011 1Q12

Net debt/EBITDA Net debt/FFO

0.0 1.0 2.0 3.0 4.0 5.0 2012 2013 2014 2015 2016 > 2016

Bank debt Bond Other

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FIAT INDUSTRIAL (Moody’s Ba1/Stable, S&P BB+/Negative)

Revenues by geographical area (2011) Trend in profitability

Italy 10.2% Rest of Europe 32.8% North America 24.9% Mercosur 16.9% Other 15.2% 5.3% 8.2% 9.7% 10.4% 1.8% 5.1% 6.9% 7.5% 0% 2% 4% 6% 8% 10% 12% 2009 2010 2011 1Q12

EBITDA margin EBIT margin

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendation

Credit View Neutral. We expect Fiat Industrial’s credit profile to hold mostly steady in 2012, attributable to the strong performance at CNH and the group's broad geographical diversity which should offset poor performance at Iveco, especially in Europe. FI could raise CNH’s 2012 targets in July/October. By YE12, FI aims to merge Fiat Industrial and CNH into a Netherlands-based NewCo, listed on the NYSE, with a view to improving access to international capital markets and reducing the cost of funding.

Stable ratings. S&P’s stable outlook reflects expectations of a steady credit profile in 2012, but it rules out a rating upgrade in the short term due to unfavourable macroeconomic conditions in southern Europe. Moody’s stable outlook reflects FI’s solid position in its rating category and its high liquidity. Moody’s has a favourable view of the possible FI/CNH merger since FI would benefit from greater control over CNH (around 70% of consolidated operating profit) and CNH could benefit from a rating upgrade to FI’s level (currently Ba2/stable).

Market focus. We stand by our HOLD recommendation of FI bonds as spreads already discount a rating upgrade to investment grade territory, but the rating agencies rule it out in the short term.

Strengths Weaknesses

 World’s third largest manufacturer of agricultural and construction machines and trucks.

 CNH’s outlook still positive in 2012.

 High liquidity and no refinancing risk until 2015.

 Possible rating upgrade to investment grade in medium term.

 Cyclical and highly capital-intensive businesses.

 Demand for industrial vehicles in decline in Europe and Brazil in 2012.

 Frequent need to fund captive finance business.

 M&A risk for CNH and Iveco

 Jointly liable with Fiat for the group’s pre-split debts.

Leverage trend (x) Net Debt Repayment Schedule (EUR Bn, 31.12.12)

3.8 1.1 0.5 0.8 1.4 0.7 1.1 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2009 2010 2011 1Q12

Net debt/EBITDA Net debt/FFO

0.0 0.5 1.0 1.5 2.0 2.5 3.0 2012 2013 2014 2015 2016 > 2016

Bank debt Bond Other

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FINMECCANICA (Moody’s Baa2/Negative, S&P and Fitch BBB-/Negative)

Revenues by geographical area (2011) Trend in profitability

Italy 20% UK 12% USA 21% Rest of Europe 28% Other 19% 13.4% 12.2% 11.7% 10.8% -0.9% 8.2% 8.1% 8.0% 7.7% 6.6% -4.9% 3.9% -10% -5% 0% 5% 10% 15% 2007 2008 2009 2010 2011 1Q12

EBITDA margin EBIT margin

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendation

Credit View Negative. Based on deterioration in its 1Q12 results, we stand by our Credit View Negative on Finmeccanica, in expectation of concrete progress on the restructuring of problem businesses and the sale of non-strategic assets. In this difficult industry environment, with defence budget cuts in Italy, UK and US, and the rise in competition in emerging countries, Finmeccanica's ability to generate cash could remain under pressure in the medium term, with little possibility of de-leveraging unless it sells non-strategic assets.

Ratings under pressure. All the rating agencies maintain a negative outlook, and S&P and Fitch may downgrade Finmeccanica to junk. The negative outlook reflects high execution risks on the restructuring plan that management is pursuing in the current difficult economic environment. As a result, Finmeccanica’s rating could be downgraded if the EUR 1Bn asset sales plan is not executed or operating conditions deteriorate further. However management has reiterated that maintaining an investment grade rating remains a top priority.

Market focus. Since spreads already discount such a pessimistic scenario in our view, we stand by our HOLD recommendation on Finmeccanica bonds.

Strengths Weaknesses

 Good competitive position in Europe.

 Favourable business mix, with predominance of military revenues.

 Backlog covers around 2.5 years of production.

 Strategic 32.4% stake held by Italian government.

 Low refinancing risk until 2014.

 Industry outlook negative due to expected defence budget cuts in the main OECD countries.

 Dependence on Italian military market, expected down.

 High execution risk to restructuring and EUR 1Bn asset sales plan.

 Rating at risk of downgrade to junk status.

Leverage trend (x) Net Debt Repayment Schedule (EUR Bn, 31.03.12)

0.6 1.8 1.4 1.6 2.6 3.6 1.1 2.1 2.0 2.2 3.8 5.5 0.0 1.0 2.0 3.0 4.0 5.0 6.0 2007 2008 2009 2010 2011 1Q12

Net debt/EBITDA adj. Net debt/FFO

0.0 0.5 1.0 1.5 2.0 2.5 2012 2014 2016 2018 2020 2022 2039

Bond Bank debt

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HERA (Moody’s Baa1/Negative, S&P BBB+/Stable)

EBITDA breakdown (2011) Trend in profitability

Regulated 53% Not regulated 47% 15.6% 13.9% 12.8% 15.7% 15.4% 15.9% 7.6% 7.4% 6.6% 8.1% 7.9% 10.7% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 2007 2008 2009 2010 2011 1Q12

EBITDA margin EBIT margin

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations Credit view, rating, and bond recommendation

 Credit View Neutral. Despite higher operating risk due to the economic slowdown in Italy and the uncertain tariff framework in the Italian water business, we stand by our Credit View Neutral on HERA, given the high contribution from regulated business and the company's solid financial profile. HERA is negotiating a merger with ACEGAS-APS which has a weaker financial profile, though for a complete assessment we need to wait for details on a possible agreement.

Ratings under pressure. Moody’s negative outlook reflects expectations of a possible deterioration in HERA’s financial profile due to the macroeconomic deterioration in Italy, the negative impact of HERA’s sizable capex plan, and its high dividend pay-out. But even after the letter of intent signed with ACEGAS-APS, S&P’s stands by its outlook stable in expectation of assessing the terms of an actual merger.

Market focus. We stand by our HOLD recommendation on HERA bonds based on expectations that its fundamental will hold mostly steady, despite high exposure to Italy country risk, exacerbated by the economic deterioration.

Strengths Weaknesses

 One of Italy’s biggest multi-utilities, leader in waste management, and significant position in water industry.

 53% of EBITDA from regulated businesses.

 Low refinancing risk in 2012-2013.

 De-leveraging ongoing after major external expansion through acquisitions.

 Total operating exposure to Italy, with possible negative impact from economic slowdown and austerity measures.

 Uncertain tariff framework in the water division (16% of EBITDA) after the referendum result that abolished the previous framework.

 EUR 1.8Bn planned investment in 2011-2015 and high dividend pay-out.

 Uncertainty due to possible merger with ACEGAS-APS.

Leverage trend (x) Debt repayment schedule at 31.12.2011 (EUR M)

3.1 3.0 3.3 3.1 3.1 3.1 4.8 5.5 6.7 5.3 5.1 4.9 0 1 2 3 4 5 6 7 8 2007 2008 2009 2010 2011 1Q12

Net debt/EBITDA Net debt/FFO

0 500 1,000 1,500

2012 2013 2014 2015 2016 > 2016

Bond Bank debt

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LOTTOMATICA (Moody’s Baa3/Stable, S&P BBB-/Positive)

Revenues by geographical area (2011) Trend in profitability

Italy 64.6% USA 18.3% UK 2.4% Other 14.7% 38.5%42.2% 36.7% 36.0% 35.1% 32.6%35.9% 23.4% 23.8% 16.5% 16.8% 16.7% 18.1%21.7% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2006 2007 2008 2009 2010 2011 1Q12

EBITDA margin EBIT margin

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendation

Credit View Positive. Based on improvement in Lottomatica’s 1Q12 results, its commitment to further de-leveraging in 2012-13, and low refinancing risk until 2015, we stand by our Credit View Positive. We also appreciate management’s effort to focus on broader geographical diversification to reduce the company's exposure to Italy country risk and ensure greater sustainability in improving its fundamentals in the medium term, now that the Italian lottery industry has reached the maturity stage.

Possible rating upgrade. We believe that if Lottomatica achieves its 2012 leverage target and Italy country risk stabilises, S&P and Moody’s could both upgrade the company’s rating by one notch.

Market focus. We stand by our BUY recommendation on Lottomatica bonds in view of attractive spreads, the improvement in fundamentals, and a possible rating upgrade in the next 12 months.

Strengths Weaknesses

 Global leader in lottery industry.

 High visibility on cash flow: around 90% of revenues guaranteed by contracts in 2012-2016.

 Commitment to deleveraging in 2012-2013.

 Low refinancing risk until 2015.

 Mature, capital-intensive, and regulated sector.

 65% of revenues and 74% of EBITDA concentrated in Italy in 2011.

 Some exposure to EUR/USD exchange rate risk.

Leverage trend (x) Debt repayment schedule at 31.03.12 (EUR Bn)

6.9 3.2 3.6 3.1 3.7 2.8 2.7 8.1 3.4 4.3 3.8 4.5 3.0 2.8 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2006 2007 2008 2009 2010 2011 1Q12

Net debt/EBITDA Net debt/FFO

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 2012 2013 2014 2015 2016 2017 2018 >2018

Bank debt Senior bond Hybrid bond Other

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SEAT (Moody’s Ca/under revision for upgrade, S&P D)

Breakdown of sales by activity (1Q12) Trend in profitability

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendation

Credit View Negative. After the debt restructuring, leverage nevertheless remains high and above all we remain concerned over the medium term outlook for the group and in particular its ability to either freeze the contraction in profitability and marginality in switching its business model to online and/or manage such contraction whilst improving leverage.

Rating. Ratings have suffered from recent events. We believe the rating agencies will adopt a wait and see strategy for the time being.

Market focus. HOLD recommendations, as we believe bonds are adequately priced.

Strengths Weaknesses

 The directories market is facing structural contraction but the Italian market is a lagged market compared to European peers and hence the decline in the traditional business is slower, permitting more time to effectively manage switch in the business model vs. peers.

 Despite high leverage and the contracting market, the group remains a strong core cash generator (typical cash cow profile).

 Large Italian exposure but the weakest operations remain those abroad, notably in the UK.

 Apparent inability to sell foreign assets (UK Directories) which are currently a modest haemorrhage.

 Still facing major structural issues over the medium term related to the business model and uncertainty as to how the switch from traditional print to online revenues will develop and notably the potential impact on marginality and cash generation.

Trend in leverage (x) Debt maturity profile envisaged post restructuring (EUR M)

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TELECOM ITALIA (Moody’s Baa2/Neg., S&P and Fitch BBB/Neg.)

Sales by geographic area (1Q12) Trend in profitability

Source: Company data, Intesa Sanpaolo Research Department calculations Source: Company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendation

Credit View not assigned. Latest results suggest greater stability after years of deterioration and some evidence of improved competitiveness but rating pressure remains. Growth being achieved in Latam, but at the detriment of operating marginality.

Rating under pressure. Rating at risk of a downgrade mainly due to the high exposure to Italy country risk and still high debt burden.

Market focus. Bond recommendation not assigned.

Strengths Weaknesses

 High margins, particularly in domestic operations.

 Greater margin stability feeding through.

 Good core cash flow generation.

 Slow de-leveraging achieved, further de-leveraging desired.

 Balanced debt maturity profile.

 Strong liquidity margin.

 High exposure to Italy (62% of sales and 73% of EBITDA).

 Incumbent operator experiencing structural contraction in some segments although the decline in domestic operations and competitive pressure slowing/easing.

 Low further de-leveraging potential over m/t, largely dependent on development of cash generation, as limited disposals now available.

Trend in leverage (x) Debt maturity profile (EUR Bn, March 2012)

(25)

Credit Sector Report

28 June 2012

Intesa Sanpaolo Research Department

25

WIND (Moody’s B1/Stable, S&P BB-/Stable, Fitch BB/Negative)

Breakdown of sales by activity (1Q12) Trend in profitability

Source: company data, Intesa Sanpaolo Research Department calculations Source: company data, Intesa Sanpaolo Research Department calculations

Credit view, rating, and bond recommendation

Credit View Neutral. Sound core business profile and solid credit friendly track record. Competitive pressure is however building and the de-leveraging outlook is uncertain. Key to the outlook is the policy of the parent VimpelCom as regards Wind’s position and future potential within the wider VimpelCom group structure.

Rating under pressure. Downside pressure may build if the company embarks on acquisitions or seeks to consolidate its position further in the Italian market, or if de-leveraging is de-railed by policy considerations of the parent. High exposure to Italy sovereign risk given total reliance on the Italian market.

Market focus. Attractive spreads are largely disengaged from underlying fundamental performance in our view, but HOLD bond recommendation maintained due to sovereign risk concerns.

Strengths Weaknesses

 High margins, strong cash flows, although weakening somewhat. Solid operating performance historically.

 Well positioned in the Italian market although competition is beginning to bite

 Proven management competence over recent years and solid largely credit friendly track record as bondholders and upstream interests were predominantly aligned. Some uncertainty now remains over this issue.

 History of pre-paying debt and exceeding leverage targets.

 100% Italian exposure.

 Wind now beginning to feel the effects of competition, greater pressure on margins.

 Highly leveraged. Although the company has consistently beaten leverage expectations it has periodically re-leveraged within permitted covenant limits (or requiring waivers) when viable opportunities have been found.

 After the acquisition by VimpelCom, upstream parental considerations now a major driver. Introduces an element of uncertainty. If operating performance wanes, the extent of parental support may be questioned.

Trend in leverage (x) Debt maturity profile (31.03.2012)

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Credit Sector Report

28 June 2012

Intesa Sanpaolo Research Department

26

Appendix - Italian Corporate Bonds

Italian corporate bonds denominated in euro

bp Outst. YTM1 ASW YTD2 52-week range Ratings

Investment Grade EUR M % -1W -1M 03.01.12 max min S&P Fitch Moody's ACEIM 4 7.8 07.23.14 300 3.6 275.1 28.5 84.8 -25.6 357 92 BBB A- Baa1 ACEIM 4 1.2 03.16.20 500 5.9 387.1 15.2 56.3 -2.1 425 128 BBB A- Baa1 AEMSPA 4 7.8 10.30.13 500 3.6 274.7 -0.7 80.6 -73.7 373 75 BBB - Baa2 *-AEMSPA 4 7.8 05.28.14 500 4.6 367.7 0.7 111.8 -1.3 404 112 BBB - Baa2 *-AEMSPA 4 1.2 11.02.16 1,000 5.6 420.9 16.0 99.5 53.7 420 139 BBB - Baa2 .*-ATLIM 5 06.09.14 2,218 2.6 174.2 -7.3 -5.7 -105.3 340 75 BBB+ A- A3 ATLIM 5 5.8 05.06.16 1,500 4.4 333.4 5.9 94.8 29.9 356 97 BBB+ A- A3 ATLIM 3 3.8 09.18.17 1,000 4.6 312.5 7.8 80.0 54.8 327 94 BBB+ A- A3 ATLIM 4 1.2 02.08.192 1,000 5.2 347.8 8.3 77.8 95.9 347 186 BBB+ A- A3 ATLIM 5 7.8 06.09.24 1,000 5.5 347.1 9.6 48.5 80.5 344 107 BBB+ A- A3 ATLIM 4 3.8 09.16.25 500 5.8 329.2 7.1 58.9 43.8 327 121 BBB+ A- A3 BZUIM 5 1.8 12.09.16 350 6.0 462.4 7.3 43.6 -88.6 641 207 BB+ - -EDNIM 4 1.4 07.22.14 700 2.9 208.5 1.3 22.2 -161.1 446 110 BB+ BB- .*+ Baa3 EDNIM 3 7.8 11.10.17 600 3.7 234.5 6.8 18.8 -141.0 435 142 BB+ BB- .*+ Baa3 ENELIM 4 1.4 06.12.13 750 2.7 179.0 13.1 97.7 1.8 193 38 BBB+ A- .*- Baa1 .*-ENELIM 4 5.8 06.24.15 1,250 4.4 344.6 -11.9 108.2 91.7 370 150 BBB+ A- .*- Baa1 .*-ENELIM 3 1.2 02.26.16 2,000 4.3 312.3 -19.4 26.6 33.7 368 73 BBB+ A- .*- Baa1 .*-ENELIM 4 09.14.16 1,500 4.7 345.0 -7.6 94.9 108.8 353 78 BBB+ A- .*- Baa1 .*-ENELIM 5 1.4 06.20.17 1,500 5.3 396.9 -11.5 81.2 82.8 408 97 BBB+ A- .*- Baa1 .*-ENELIM 4 1.8 07.12.17 1,000 5.2 373.1 -11.5 81.4 72.4 385 121 BBB+ A- .*- Baa1 .*-ENELIM 4 7.8 02.20.182 2,500 5.2 367.0 -1.3 30.7 95.5 371 254 BBB+ A- .*- Baa1 .*-ENELIM 4 3.4 06.12.18 750 5.3 370.9 -11.1 69.6 121.9 382 96 BBB+ A- .*- Baa1 .*-ENELIM 5 3.4 10.24.18 1,000 5.9 429.2 -15.6 78.0 59.8 445 234 BBB+ A- .*- Baa1 .*-ENELIM 5 07.12.21 750 6.1 400.9 -4.3 80.0 50.6 405 164 BBB+ A- .*- Baa1 .*-ENELIM 5 09.14.22 2,500 6.2 396.3 -10.7 65.7 51.8 407 136 BBB+ A- .*- Baa1 .*-ENELIM 5 1.4 09.29.23 300 6.1 382.3 1.6 53.7 80.3 383 124 BBB+ A- .*- Baa1 .*-ENELIM 5 1.4 05.20.24 750 6.3 392.3 -1.4 62.6 63.4 394 130 BBB+ A- .*- Baa1 .*-ENELIM 5 5.8 06.21.27 850 6.7 413.0 -2.6 55.9 29.8 416 173 BBB+ A- .*- Baa1 .*-ENIIM 4 5.8 04.30.13 1,500 1.4 50.2 -7.7 16.3 -40.3 123 18.2 A A+ A2 ENIIM 5 7.8 01.20.14 1,250 1.7 87.5 7.4 32.2 -61.7 169 46 A A+ A2 ENIIM 4 06.29.15 1,000 2.5 150.8 9.3 38.4 -18.1 222 64 A A+ A2 ENIIM 5 01.28.16 1,500 2.6 158.6 18.5 53.0 -29.6 214 73 A A+ A2 ENIIM 4 7.8 10.11.17 1,110 3.9 258.1 0.2 37.9 -14.6 286 177 A A+ A2 ENIIM 4 3.4 11.14.17 1,250 3.2 187.9 16.0 51.8 -1.2 217 75 A A+ A2 ENIIM 3 1.2 01.29.18 1,000 3.3 188.2 20.2 51.0 7.7 209 77 A A+ A2 ENIIM 3 3.4 06.27.192 750 3.8 219.5 - - 9.2 210 210 A A+ A2 ENIIM 4 1.8 09.16.19 1,500 3.8 213.3 19.6 49.1 15.2 222 83 A A+ A2 ENIIM 4 1.4 02.03.202 1,000 3.8 216.6 16.0 48.1 21.5 216 135 A A+ A2 ENIIM 4 06.29.20 1,000 3.9 213.2 17.7 49.1 20.2 222 81 A A+ A2 EXOIM 5 3.8 06.12.17 750 5.1 383.0 2.1 -4.0 -96.4 599 203 BBB+ - -FNCIM 8 1.8 12.03.13 815 3.7 296.8 3.5 51.7 -209.0 686 95 BBB- BBB- Baa2 FNCIM 5 3.4 12.12.18 500 5.9 426.0 3.3 2.7 -204.1 676 142 BBB- BBB- Baa2 FNCIM 5 1.4 01.21.22 600 7.5 500.5 -1.8 18.4 -103.8 634 179 BBB- BBB- Baa2 FNCIM 4 7.8 03.24.25 500 7.6 461.4 3.0 0.1 -52.1 523 149 BBB- BBB- Baa2 HERIM 4 1.8 02.16.16 500 4.2 309.2 -1.3 52.0 -82.4 405 118 BBB+ - Baa1 HERIM 4 1.2 12.03.19 500 5.3 346.1 5.9 46.8 -86.2 434 145 BBB+ - Baa1 ITCIT 5 3.8 03.19.20 750 8.7 639.6 2.7 36.9 -26.7 678 243 BB+ - Ba1 LTOIM 5 3.8 12.05.16 750 4.8 361.8 -1.2 3.0 -128.4 564 214 BBB- - Baa3 LTOIM 5 3.8 02.02.18 500 5.2 373.3 0.7 12.0 -136.9 580 222 BBB- - Baa3 LUXIM 4 11.10.15 500 2.6 165.2 1.2 43.1 -89.2 291 115 BBB+ - -LUXIM 3 5.8 03.19.192 500 3.2 168.0 2.6 29.7 19.4 171 125 BBB+ - -POSIM 5 1.4 07.03.12 750 2.9 266.8 - - 169.8 271 44 BBB+ A- A3 SISIM 4 1.2 10.26.20 500 5.8 375.9 8.7 22.2 -53.1 455 173 - - Baa2 ACEIM = Acea; ATLIM = Atlantia; BZUIM = Buzzi unicem; EDNIM = Edison; EXOIM = Exor; FNCIM = Finmeccanica; HERIM = Hera; LTOIM = Lottomatica.*) CreditWatch; NA: Not Available. Note: The ratings reported in the table refer to individual issues; if not available, the Moody’s Senior Unsecured Debt Rating is reported or (if not available) Issuer Rating; for Fitch: Senior Unsecured Debt Rating or (if not available) Long Term Issuer Default Rating; for S&P: LT Foreign Currency Issuer Rating or (if not available) LT Local Currency Issuer Rating. 1) YTC for callable bond; 2) YTD from launch date for bonds issued on current year. Source: Intesa Sanpaolo Research elaboration on Bloomberg data

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