Italian Corporates in the COVID-19 Era: First Steps on a Steep

Italian Corporates In The COVID-19 Era: Authors: Renato Panichi First Steps On A Steep Recovery Path Arianna Valezano

November 25, 2020 Contents

Key Takeaways 3

Italian Corporates: Rating And Outlook Distribution 4

Italian Corporates: Impact Of COVID-19 9

Appendix: Italian Corporate Rating Headroom 23 Key Takeaways

42% of rated Italian companies currently display a negative outlook. This is in line with the European average; the downgrade risk reflects the COVID-19 pandemic and companies’ idiosyncratic weaknesses. Post-pandemic revenue should return to 2019 levels in mid-2022, thus moderately outperforming domestic GDP. In the downside scenario, to which we assign a 40% chance, revenue would return to 2019 levels one year later, in 2023. Financial leverage and profitability should return to 2019 levels in mid-2022. In the downside scenario, a return to 2019 levels would take place in mid-2023. Speculative-grade companies display more pronounced deterioration of leverage than investment-grade companies, but their speed of recovery is swifter. Corporate investments should contract on average by 12% in 2020 and then progressively recover in 2021- 2022. Yet there are big differences between companies, and those with solid balance sheets have not reduced capital expenditure (capex) in 2020. Business confidence plays a key role in capex, and in the downside scenario we anticipate slower rebound in 2021. State funding support is largely addressing small business liquidity needs. In October 2020, new loans with state guarantee reached €111 billion, or 9% of total debt, and debt moratoria reached €196 billion, or 15% of total debt.

3 Italian Corporates Ratings And Outlook Distribution Italian Corporates | Downgrade Risk In Line With European Average

– Out of 43 rated Italian companies, 42% currently display a negative outlook, which is almost in line with the European average. Downgrade risk reflects both the pandemic and companies’ idiosyncratic weaknesses. – In 2020, we took negative rating actions on 18 companies--or two-fifths of the total--mostly as a result of the pandemic.

Change In Ratings Since COVID-19 Outbreak In Italy Change In Outlooks Since COVID-19 Outbreak In Italy and EMEA

Ratings end-February 2020 Ratings end-October 2020 Italy end-2019 Italy end-Oct. 2020 EMEA end-2019 EMEA end-Q2 2020

29% 73%

23% 55% 56%

19% 47% 42% 41%

33% 12% 12% 12% 12% 12% 9% 10% 9% 20% 7% 7% 7% 7% 13% 11% 7% 2% 2% 2% 2% 2% 2% 3%

A- BBB+ BBB BBB- BB+ BB- B+ B B- CCC+ SD Negative Positive Stable

Q--Quarter. EMEA--Europe, Middle East, and Africa. Source: S&P Global Ratings. Source: S&P Global Ratings. Data as of Oct. 31, 2020.

5 COVID-19 | Downgrades In The Speculative-Grade Category (1/2) Rating Changes

Italian government 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sovereign rating Italy A+ A+ A BBB+ BBB BBB- BBB- BBB- BBB BBB BBB BBB

Investment-grade Italian companies 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2i Rete Gas ------BBB BBB BBB BBB BBB BBB BBB A2A SpA BBB+ BBB+ BBB+ BBB BBB BBB BBB BBB BBB BBB BBB BBB Buzzi Unicem SpA BBB BBB- BB+ BB+ BB+ BB+ BB+ BB+ BB+ BBB- BBB- BBB- Edison SpA BBB+ BBB BBB- BBB BBB+ BBB+ BBB+ BBB+ BB+ BB+ BBB- BBB- Enel SpA A- A- A- BBB+ BBB BBB BBB BBB BBB+ BBB+ BBB+ BBB+ Eni SpA AA- A+ A+ A A A A- BBB+ BBB+ A- A- A- Ferrovie delleStato Italiane ------BBB BBB- BBB- BBB- BBB BBB BBB BBB Hera SpA A- BBB+ BBB+ BBB+ BBB BBB BBB BBB BBB BBB BBB BBB MM SpA ------BBB- BBB BBB BBB BBB SNAM ------A- BBB+ BBB BBB BBB BBB+ BBB+ BBB+ BBB+ Società Metropolitana Acque Torino SpA ------BBB BBB BBB- BBB- BBB- BBB- Terna SpA A+ A+ A A- BBB+ BBB BBB BBB BBB+ BBB+ BBB+ BBB+

Speculative-grade Italian companies (1/2) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Aeroporti di Roma SpA BB BB BB BB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB BB+ Almaviva SpA ------B+ B+ B B Amplifon Spa ------BB+ Atlantia SpA A- A- A- BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB BBB- BB- Autostradeper l’Italia A- A- A- BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB BBB- BB- Bormioli Pharma SpA ------B B

Note: Ratings highlighted in green point to an upgrade and ratings highlighted in orange point to a downgrade.

6 COVID-19 | Downgrades In The Speculative-Grade Category (2/2) Rating Changes

Speculative-grade Italian companies (2/2) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Diocle SpA ------B B Esselunga SpA ------BBB- BBB- BBB- BB+ EVOCA SpA ------B B B B Fabric (BC) SpA ------B+ B B F-brasile SpA ------B B- Gamma Bidco SpA ------B B B+ B+ B Fire (BC) SpA ------B B B- Guala Closures SpA -- -- B B B B B B B B+ B+ B+ Immobiliare Grande Distribuzione SIIQ SpA ------BBB- BB+ InfrastruttureWireless Italiane SpA ------BB+ International Design Group ------B B Leonardo SpA BBB BBB BBB- BBB- BB+ BB+ BB+ BB+ BB+ BB+ BB+ BB+ Lima Corporate SpA ------B B B B- Marcolin SpA ------B- B- B- B- B B B B- Moby SpA ------B+ B+ CCC- CCC- SD Piaggio & C. SpA BB BB BB BB- BB- B+ B+ B+ B+ BB- BB- B+ Pro.Gest SpA ------BB B CCC+ Rekeep SpA( ex CMF SpA) ------B+ B B B B B B B Rossini Acquisitions ------B B Saipem SpA ------BB+ BB+ BB+ BB+ BB+ Sisal Group SpA ------B B B B+ B+ B+ B+ B Sisal Pay Group SpA ------BB- Specialty Chemicals International ------B B+ B+ B+ Telecom Italia SpA BBB BBB BBB BBB BB+ BB+ BB+ BB+ BB+ BB+ BB+ BB+ Webuild SpA ------BB BB BB+ BB+ BB+ BB BB- BB-

Note: Ratings highlighted in green point to an upgrade and ratings highlighted in orange point to a downgrade.

7 Italian Corporates Rating Distribution | Higher Share of Speculative- Grade Ratings Compared With EMEA

– A higher share of speculative-grade ratings reflects a few fallen angels in 2020, such as Atlantia SpA, and a higher number of small, less diversified, and highly indebted companies when compared with the EMEA average. – Most investment-grade ratings are in the utility and infrastructure sectors.

Italian Issuers’ Rating Distribution Compared With EMEA 25 EMEA

Italy 20

10 % of issuers % of

0 Above A+ A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- Below B-

Note: Italy data as of Oct. 31, 2020; EMEA data as of June 30, 2020. EMEA--Europe, Middle East, and Africa. Source: S&P Global Ratings.

8 Italian Corporates Impact Of COVID-19 Macroeconomic Overview | No Time To Celebrate The Q3 Rebound

Top European Risks

Extended containment measures and transition to post-COVID-19 policies – Supported by wide-ranging policy measures, Europe has bounced back well from the COVID-19 Risk level Very low Moderate Elevated High Very high Risk trend Improving Unchanged Worsening lockdowns in March and April 2020.

Insolvency remains a major concern for more vulnerable corporates – The virus’ resurgence across Europe supports our expectation that the hardest-hit sectors will not Risk level Very low Moderate Elevated High Very high Risk trend Improving Unchanged Worsening recover to2019 levels until2023 or later. – A record level of companies rated 'B' and lower as Global trade tensions still cast a shadow over the global economy we entered the pandemic will result in the Risk level Very low Moderate Elevated High Very high Risk trend Improving Unchanged Worsening speculative-grade default rate rising to 8.5% by June 2021, from our latest estimated default rate of 3.8%. Extended uncertainty inhibits consumer spending

Risk level Very low Moderate Elevated High Very high Risk trend Improving Unchanged Worsening Real GDP Forecasts % year-on-year 2019 2020 2021 2022 2023 U.K. and EU fail to negotiate a free trade agreement by year-end Italy 0.3 (8.9) 6.4 2.3 1.6 France 1.5 (9.0) 7.7 2.8 2.2 Risk level Very low Moderate Elevated High Very high Risk trend Improving Unchanged Worsening Spain 2.0 (11.3) 8.2 4.3 2.6 Germany 0.6 (5.4) 4.7 2.4 1.6 U.K. 1.5 (9.7) 7.9 3.0 2.0 Risk levels may be classified as very low, moderate, elevated, high, or very high, and are evaluated by considering both the likelihood and systemic impact of such an event occurring over the next one-to-two Eurozone 1.3 (7.4) 6.1 3.0 2.0 years. Typically, we do not factor these risks into our base case rating assumptions unless the risk level is China 6.1 2.1 6.9 4.8 5.2 very high. Risk trend reflects our current view on whether the risk level could increase or decrease over the U.S. 2.2 (4.0) 3.9 2.4 2.6 next 12 months. Source: S&P Global Ratings.

Source: "The Eurozone Is Healing From COVID-19," Sept. 24, 2020, S&P Global Ratings.

10 EMEA | Hardest Hit Sectors Longest To Recover

Timeframe Of Recovery Of (Run Rate) Credit Metrics To 2019 Levels – Recovery prospects will vary widely No deterioration 2022 Beyond 2023 across different corporate sectors. - Healthcare - Pharmaceuticals - Utilities - A&D - Commercial Aerospace - Retail - Essential/Grocery - Cons Prod - Tobacco & Alcoholic Beverage - Retail - Non-essential Those hardest hit by the economic - A&D - Defense Contractors - Business & Consumer Services - Retail - Restaurants - Real Estate (REITs) - Transport Infra - Airports downturn and social distancing-- - Technology - Transportation - Airlines - Engineering & Construction including nonessential retail, - Transportation - Shipping 2H 2021 - Capital Goods restaurants, and travel--may not fully - Telecom - Building Materials - Healthcare - Equipment - Chemicals recover to 2019 levels until 2023 or - Transport Infra - Toll Roads - Metals & Mining - Paper & Packaging later. - Homebuilders & Developers 2023 - Oil & Gas - Cons Prod - Luxury & Discretionary – Key risks remain: a resurgence in - Leisure - Gaming 1H 2021 - Automotive - Media & Entertainment - Cons Prod - Pack.Food/Pers & Home Care/Agr&Ingr. - Leisure - Lodging and hospitality infections before a vaccine becomes - Healthcare - Services - Transport Infra - Rail - Leisure - Cruise lines - Leisure - Theme park and other visitor attractions widely available; deteriorating credit fundamentals raising solvency issues, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 notwithstanding short-term liquidity support measures; escalation in 2022 2023 bilateral trade tensions globally; and uncertainty and job insecurity inhibiting a recovery in consumer spending.

Note: Green indicates sectors that we expect will recover sooner than initially indicated in our June publication. Orange indicates a later recovery. Source: “COVID-19 Heat Map: Updated Sector Views Show Diverging Recoveries,” Sept. 29, 2020. S&P Global Ratings.

11 Global PMI Heatmap | Recovery More Pronounced In Manufacturing

Manufacturing Heatmap 06/19 07/19 08/19 09/19 10/19 11/19 12/19 01/20 02/20 03/20 04/20 05/20 06/20 07/20 08/20 09/20 Europe 47.6 46.6 47.1 46.0 46.2 47.0 46.4 48.1 49.1 44.3 33.4 39.5 47.4 51.7 51.6 53.5 Eurozone 47.6 46.5 47.0 45.7 45.9 46.9 46.3 47.9 49.2 44.5 33.4 39.4 47.4 51.8 51.7 53.7 France 51.9 49.7 51.1 50.1 50.7 51.7 50.4 51.1 49.8 43.2 31.5 40.6 52.3 52.4 49.8 51.2 Germany 45.0 43.2 43.5 41.7 42.1 44.1 43.7 45.3 48.0 45.4 34.5 36.6 45.2 51.0 52.2 56.4 Italy 48.4 48.5 48.7 47.8 47.7 47.6 46.2 48.9 48.7 40.3 31.1 45.4 47.5 51.9 53.1 53.2 Spain 47.9 48.2 48.8 47.7 46.8 47.5 47.4 48.5 50.4 45.7 30.8 38.3 49.0 53.5 49.9 50.8 U.K. 48.0 48.0 47.4 48.3 49.6 48.9 47.5 50.0 51.7 47.8 32.6 40.7 50.1 53.3 55.2 54.1 U.S. 50.6 50.4 50.3 51.1 51.3 52.6 52.4 51.9 50.7 48.5 36.1 39.8 49.8 50.9 53.1 53.2 China 49.4 49.9 50.4 51.4 51.7 51.8 51.5 51.1 40.3 50.1 49.4 50.7 51.2 52.8 53.1 53.0

Services Heatmap 06/19 07/19 08/19 09/19 10/19 11/19 12/19 01/20 02/20 03/20 04/20 05/20 06/20 07/20 08/20 09/20 Europe 52.8 52.8 52.8 51.1 51.7 51.2 52.1 52.8 52.6 26.4 12.0 30.5 48.3 54.7 50.5 48.0 Eurozone 53.6 53.2 53.5 51.6 52.2 51.9 52.8 52.5 52.6 26.4 12.0 30.5 48.3 54.7 50.5 48.0 France 52.9 52.6 53.4 51.1 52.9 52.2 52.4 51.0 52.5 27.4 10.2 31.1 50.7 57.3 51.5 47.5 Germany 55.8 54.5 54.8 51.4 51.6 51.7 52.9 54.2 52.5 31.7 16.2 32.6 47.3 55.6 52.5 50.6 Italy 50.5 51.7 50.6 51.4 52.2 50.4 51.1 51.4 52.1 17.4 10.8 28.9 46.4 51.6 47.1 48.8 Spain 53.6 52.9 54.3 53.3 52.7 53.2 54.9 52.3 52.1 23.0 7.1 27.9 50.2 51.9 47.7 42.4 U.K. 50.2 51.4 50.6 49.5 50.0 49.3 50.0 53.9 53.2 34.5 13.4 29.0 47.1 56.5 58.8 56.1 U.S. 51.5 53.0 50.7 50.9 50.6 51.6 52.8 53.4 49.4 39.8 26.7 37.5 47.9 50.0 55.0 54.6 China 52.0 51.6 52.1 51.3 51.1 53.5 52.5 51.8 26.5 43.0 44.4 55.0 58.4 54.1 54.0 54.8

PMI: Purchasing managers’ index. Index value > 50 means expansion, Index value < 50 means contraction. Source: IHS Markit, Refinitiv, S&P Global Ratings.

12 Italy | Traffic Down Again After Q3 Rebound

– There is a high risk of a more pronounced slowdown in Q4 2020 and Q1 2021, as result of new restrictions adopted by the Italian government. – Italy’s toll road traffic recovery in June-October was largely in line with that of France.

Electricity Demand In Italy Toll Road Traffic Performance

Italy Spain France

32 20%

30 0% 28

(20%) 26

24 (40%) GWh

22 (60%) 20 (80%) 18

16 (100%) Jan-1 9 Mar -1 9 May -1 9 Jul-19 Sep-19 Nov-19 Jan-2 0 Mar -2 0 May -2 0 Jul-20 Sep-20 Jan-2 0 Feb-20 Mar -2 0 Apr-20 May -2 0 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20

GWh--Gigawatt hours. Source: TERNA Monthly Report on Electricity. Source: Atlantia Report on Weekly Traffic Performance.

13 Italy | Economic Sentiment Recovered But Equity Prices Still Behind

– Economic sentiment has significantly rebounded from its 2020 low point in April, thanks to improved business confidence in manufacturing and construction. – The equity prices drop matches peers’ average, but recovery momentum is lagging.

Italy Business Confidence Indicators (Index) FTSE MIB, CAC40, nd DAX Indexes (Daily % Change)

Assessment of general state of economy* (right axis) FTSE MIB INDEX (^FTSEMIB) - Index Value Business confidence in the construction sector (2010=100) Paris CAC 40 Index (^PX1) - Index Value Business confidence in the manufacturing sector (2010=100) Germany DAX Index (Performance) (^DAX) - Index Value

150 100 10% 140 80 130 60 0% 40 120 20 (10%) 110 0 100 (20) (20%) 90 (40) 80 (60) (30%) 70 (80) 60 (100) (40%) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Note: Data as of Oct. 16, 2020. Index value 2015=100. Source: Banca d’Italia. Source: S&P Global Ratings.

14 Italian Corporates | Revenue To Return To 2019 Levels In Mid-2022

– Rated companies’ revenue moderately outperforms Italy’s GDP in our base-case scenario, particularly in 2022-2023. – In the downside scenario, revenue would recover to 2019 levels one year later, in 2023.

Italian Rated Companies’ Revenue Change Versus Italy’s GDP Revenue Growth Base Case Versus Downside Scenario* (Index)

Average revenue growth Italy GDP growth Base case Downside scenario

10% 110

7% 6% 105 5% 4% 4% 3% 2% 2% 100 0% 0%

Axis Title Axis 95

(5%) 90

(8%) (10%) (9%) 85 2019a 2020f 2021e 2022e 2023e 2019a 2020f 2021e 2022e 2023e

Note: See the methodology section in the appendix for details on calculation. a--Actual. e--Estimate. f-- *See the methodology section in the appendix for downside scenario definition.a-- Actual. e--Estimate. f- Forecast. Source: S&P Global Ratings. -Forecast. Source: S&P Global Ratings.

15 Italian Corporates | Leverage And Profitability To Rebound In 2022

– Leverage metrics: 2020 deterioration and 2021-2023 recovery stems largely from change in profitability, rather than change in debt. – In the downside scenario, both profitability and leverage metrics would recover one year later, in 2023.

Italian Rated Companies Adjusted Debt To EBITDA Change (x) Italian Rated Companies Adjusted EBITDA Margin (Index)

Base case Downside scenario* Base case Downside scenario*

1.5 101.0

100.5

1.0 100.0

99.5

0.5 99.0

x 98.5

0.0 98.0

97.5

(0.5) 97.0

96.5

(1.0) 96.0 2019a 2020f 2021e 2022e 2023e 2019a 2020f 2021e 2022e 2023e

*See the methodology section in the appendix for downside scenario definition. End-2019 average S&P *See the methodology section in the appendix for downside scenario definition. 2019 average S&P Global Global Ratings-adjusted debt to EBITDA (4.7x) indexed to zero. Source: S&P Global Ratings. Ratings-adjusted EBITDA margin (26%) indexed to 100. a--Actual. e--Estimate. f--Forecast. Source: S&P Global Ratings.

16 Italian Corporates | Manufacturing And Consumer More Affected Than Utilities And Materials – In 2020, manufacturing and consumer financial leverage worsened more than materials and utilities leverage, and should return to 2019 levels in 2023. – Utilities leverage metrics are less volatile than the average, reflecting their low business risk.

Adjusted Debt To EBITDA Change By Sector (x) Adjusted EBITDA Margin By Sector (Index)

Commodities and materials Consumer goods Manufacturing Utilities Commodities and materials Consumer goods Manufacturing Utilities

1.5 102

101 1.0

100 0.5

x 99

0.0 98

(0.5) 97

(1.0) 96 2019a 2020f 2021e 2022e 2023e 2019a 2020f 2021e 2022e 2023e

Note: End-2019 average S&P Global Ratings-adjusted debt to EBITDA for each sector indexed to zero. See Note: 2019 average S&P Global Ratings-adjusted EBITDA margin for each sector indexed to 100. See the the methodology slide in the appendix for more information on 2019 actual values. a--Actual. e--Estimate. methodology slide in the appendix for more information on 2019 actual values. a--Actual. e--Estimate. f-- f--Forecast. Source: S&P Global Ratings. Forecast. Source: S&P Global Ratings.

17 Italian Corporates | Small-To-Midsize Companies Show Greater Leverage And Profitability Deterioration – Small-to-midsize companies display higher deterioration of leverage and profitability than large companies, but their speed of recovery is swifter. – Large companies’ profitability margin recovery is slower, largely driven by utilities and infrastructure.

Adjusted Debt To EBITDA Change By Size (x) Adjusted EBITDA Margin By Size (Index)

Large Mid-to-small Large Mid-to-small

2.0 102

1.5 101

1.0 100

0.5x 99

0.0 98

(0.5) 97

(1.0) 96 2019a 2020f 2021e 2022e 2023e 2019a 2020f 2021e 2022e 2023e

Note: End-2019 average S&P Global Ratings-adjusted debt to EBITDA (3.3x for large companies and 6.1x Note: 2019 average S&P Global Ratings -adjusted EBITDA margin (24% for large companies and 26.5% for for small to midsize companies) indexed to zero. Large companies: revenues > €1.5 billion. a--Actual. e-- small to midsize companies) indexed to 100. Large companies: revenues > €1.5 billion. a--Actual. e-- Estimate. f--Forecast. Source: S&P Global Ratings. Estimate. f--Forecast. Source: S&P Global Ratings.

18 Italian Corporates | Speculative-Grade Companies’ Leverage Metrics Display Greater Pandemic-Induced Deterioration – Investment-grade companies’ financial leverage is significantly less volatile than speculative-grade, but those companies’ profitability margin recovery is slower, largely driven by utilities and infrastructure. – Speculative-grade companies display higher deterioration of leverage metrics, but their speed of recovery is swifter.

Adjusted Debt To EBITDA (x) Change By Rating Category Adjusted EBITDA Margin By Rating Category (Index)

Investment grade Speculative grade Investment grade Speculative grade

2.0 102

1.5 101

1.0 100

0.5x 99

0.0 98

(0.5) 97

(1.0) 96 2019a 2020f 2021e 2022e 2023e 2019a 2020f 2021e 2022e 2023e

Note: End-2019 average S&P Global Ratings-adjusted debt to EBITDA (3.4x for investment-grade Note: 2019 average S&P Global Ratings -adjusted EBITDA margin (26% for investment-grade companies companies and 5.3x for speculative-grade companies ) indexed to zero. a--Actual. e--Estimate. f-- and 25% for speculative-grade companies) indexed to 100. a--Actual. e--Estimate. f--Forecast. Source: Forecast. Source: S&P Global Ratings. S&P Global Ratings.

19 Corporate Fixed Investment | Recovery Sensitive To Confidence

– We anticipate that Italian rated companies’ corporate investments will contract on average by 12% in 2020 and then progressively recover in 2021-2022. This average masks big differences between companies, since those with solid balance sheets continued investing in 2020. – Business confidence plays a key role in capex trends, and in the downside scenario we anticipate slower rebound in 2021.

Total Corporate Fixed Investments In Italy Italian Rated Corporates Capex Change Year On Year

Change year on year - left scale Contribution in % on GDP - right scale Base case Downside scenario* 12% 12% 15% 12% 8% 11% 10% 10% 9% 4% 10% 5% 5% 4% 4% 0% 9%

(4%) 8% 0%

(8%) 7% (5%) (12%) 6%

(16%) 5% (10%)

(20%) 4% (12%) (15%) (13%) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 H1 2019a 2020f 2021e 2022e 2020

H--Half. Source: ISTAT. Note: See methodology section in appendix for downside scenario definition. Capex--Capital expenditure. Source: S&P Global Ratings.

20 Italian Corporate Liquidity | State Support Largely Addressing Small Business Needs – New state-guaranteed loans reached €111 billion, or 9% of total corporate debt, with most granted to small businesses. – Debt moratoria reached a high €196 billion in October 2020, or 15% of total corporate debt, with small businesses largely benefiting.

New State-Guaranteed Corporate Loans In Italy In 2020 Corporate Loans Moratoria In Italy In 2020

Small businesses Large-midsize companies % total of corporate loans Loans moratorium % total corporate loans

120 12% 250 19%

100 10% 200 16%

80 8% 150 13% € € 60 6% Bil. Bil. 100 10% 40 4%

50 7% 20 2%

0 0% 0 4% May June July Aug Sept Oct May June July Aug Sept Oct Nov

Source: Banca d’Italia. Source: Banca d’Italia.

21 Italian Corporate Debt | New State-Guaranteed Loans Spurred Moderate Loan Growth In 2020 – We would need to go back to 2011 to spot a loan growth comparable with that of 2020. At the same time, gross bond issuance, largely concentrated in the investment-grade category, almost offset bond maturities. – Capital structure remains centered on bank loans.

Italian Corporate Funding Sources Net Change Italian Corporate Funding Structure

Net domestic loans Net bonds ST-Loans MT/LT - Loans Bonds Debt to GDP (right scale)

80 1,400 90%

60 1,200 85%

40 80% 1,000 20 75% 800 € € . 0 70% Bil Bil. 600 (20) 65% 400 (40) 60%

(60) 200 55%

(80) 0 50% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 Q2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 Q2 2020 2020 2020 2020

Q--Quarter. Source: European Central Bank, Banca d’Italia. ST--Short term. MT--Medium term. LT--Long term. Q--Quarter. Source: European Central Bank, Banca d’Italia, ISTAT.

22 Appendix Italian Companies’ Rating Headroom and 2020 Rating Actions Italian Rated Companies | Rating Headroom Company name Rating Comments Rating headroom* 2i Rete Gas BBB/Stable/A-2 2i Rete Gas maintains great flexibility under the current rating, with 2019 results above expectations, steady operating performance, and little impact expected from the COVID-19 pandemic in 2020-2021. With ample headroom under the current rating level at year-end 2019, we expect the company's adjusted FFO to debt will decline to about 12.7% in 2020-2021 from its 2019 peak, with lowe r revenue growth than in our base case for the past year because of changes in its investment plan and the new regulatory period that started in 2020. We believe the company will maintain solid operating performance in 2020 and 2021 despite the COVID-19 pandemic, with cash flows protected from any volume risk by a supportive regulatory framework.

A2A SpA BBB/Stable/A-2 Headroom available remains adequate, despite the pandemic, due to very satisfactory 2019 results coupled with accelerated cost-reduction efforts for the next two years, and a 2020-2024 plan focused at improving the quality of A2A's earnings. S&P Global Ratings' adjusted funds from operations (FFO) to debt should stand at about 22.5% over 2020-2022, compared with 22.4% in 2019. As part of its 2020-2024 strategy update, A2A aims at improving the resiliency of its cash flow generation profile, with more than 70% of the 2020-2024 €4.5 billion investment program dedicated to the aforementionedactivities.

Aeroporti di Roma BB+/Developing We lowered our stand-alone credit profile on AdR by two notches to ‘a-’ inApril 2020 on the back of the SpA severe traffic decline driven by COVID-19 pandemic. Its rating reflects a 2 notches insulation from its parent Atlantia. This is because, despite being almost fully owned by Atlantia, AdR is subject to regulatory oversight by the grantor and must respect certain conditions under its concession agreement with ENAC which in our view protects the company from potential negative intervention by the parent. The developing outlook indicates that, absent any change in our insulation assessment, a positive ornegative rating action onAtlantia would leadto a similarrating impact on AdR.

* Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

24 Italian Rated Companies | Rating Headroom Company name Rating Comments Rating headroom*

AlmavivaSpA B/Stable Almaviva benefits from higher exposure to public sector contracts which emerged as a highly resilient sector during Covid-19 pandemic. Covid-19 outbreak has prompted public central and local administrations, as well as enterprises, to invest more in prevention and security in all sectors, with a special focus on data protection, data analytics, cybersecurity, border control – all fields that Almaviva already covers and face limited competition as the Italian market leader. Our topline growth expectation in2020 assumes anincreased penetration inpublic central and local administration.

Amplifon BB+/Negative Amplifon is the largest hearing aid retailer globally. It offers both hearing aid devices and ancillary services. Covid-19 pandemic resulted in the temporarily shutdown of many stores in key countries such as Italy, Spain, France which will affect the company’s sales performance and EBITDA development in 2020 pushing the leverage above 3.0x in 2020. However, solid cost control and cash flow management should prevent a significant margin contraction and positive . Moreover, we view Amplifon’s product and service offering as less discretionary than other nonfood retailers. The medical nature of its product offering translates into more resilient demand and faster recovery prospects from 2021.

Atlantia SpA BB-/Developing We expect COVID-19-related traffic decline to reduce Atlantia’s credit metrics, reflecting its toll road network's concentration in Italy, France, and Spain, and its exposure to airports. Nevertheless, its rating continues to reflect the risks of its core subsidiary Autostrade per l’Italia (ASPI) concession. The developing outlook indicates that we could take a positive rating action in case a settlement agreement is signed with the grantor, while downside risk remains, notably in case of a termination of ASPI concession which could trigger a liquidity event. The extent of a positive rating action on Atlantia in case of a settlement will dependon factors such as the terms ofASPI disposal, Atlantia future credit metrics and its strategy going forward.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

25 Italian Rated Companies | Rating Headroom Company name Rating Comments Rating headroom*

Autostrade per BB-/Developing We equalize our rating on Autostrade per l’Italia with that on its parent company Atlantia due to cross- l’Italia default clauses and guarantees provided by Atlantia on certain ASPI’s debt. The extent of a positive rating action on ASPI in case of a settlement agreement with the grantor will depend primarily on its future credit metrics, the supportiveness of the regulatory framework and the governance of the future shareholders. Key for the financial metrics will be the new Economic and Financial Plan due to be approved, combined with the traffic recovery on its network. At the same time, any potential legacy risk that ASPI may continue to bear, if any, in relation to the collapse of the Genoa bridge, could also be reflectedinour rating.

Bormioli Pharma SpA B/Stable We view the current rating headroom as adequate as we expect a steady operating performance and positive FOCF in 2021-2022. We believe that plastic and glass packaging producer Bormioli Pharma’s operating performance is resilient to COVID-19 related disruptions. We consider the pharma sector as relatively stable as it is not related to discretionary spending. We expect like-for-like revenues to remain flat in 2020 mainly due to a shortage of amber glass in the first-quarter (following the refurbishment of a furnace in late 2019). That said, we expect overall revenue growth of about 13% in 2020 on the back of recent acquisitions. We anticipate leverage at about 7.0x by year-end 2020. Additionally, we believe that high expansion investments and higher working capital needs will result in negative FOCF in2020.

Buzzi Unicem SpA BBB-/Stable Buzzi is the second-largest cement producer in Italy and Germany, and it generates about 90% of its sales in U.S. and Europe. Buzzi has built a very solid rating headroom thanks to solid operating results in 2018-2019 coupled with efficient cost rationalization and work ing capital management, which allows it to successfully withstand the significant contraction of the economy and lower demand in its main end-markets. As such, we believe that FFO to debt will remain comfortably above the downside rating trigger, at about 42-47% and Debt to EBITDA between 1.5x-1.8x. Following the one-off payment of the extraordinary dividend and the acquisition of CRH’s Brazilian plants in 2020, we expect that Buzzi will continue to use part of its rating headroom to consolidate its market position through strategic blot-onacquisitions.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

26 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom* Diocle SpA B/Stable We forecast limited impact from COVID-19 because the company provides an essential service, the movement of medicine and medical goods is not restricted, and access to customers (through pharmacies and hospitals) remain open in Italy. Having said that, the group might experience a destocking effect in the second half of the year after the overstocking experienced in the first quarter of 2020. The company should continue to generate continued EBITDA growth and sustain adjusted debt to EBITDA of 4.5x-5.0x in 2020 and 2021, while generating positive free operating cash flow (FOCF).

Edison SpA BBB-/Stable/A-3 We believe the COVID-19 health crisis will impair 2020 earnings, but that EBITDA growth will recover in 2021 to above 2019 level, at around €640 million, with higher volumes and growth in the generation base more than offsetting low powe r prices and decreasing rolling hedges on generation. The more cyclical business of energy services is expected to recover in 2021 and 2022 alongside Italy's economic rebound, with EBITDA returning to 2019 levels at year-end 2021. We now expect Edison's funds from operations (FFO) to debt will remain at around 40% on av e rage in the next three years and debt to EBITDA to peak in 2021 at 2.2x before reducing to about 2.0x in 2022. From 2022, we expect credit metrics to gradually recover, thanks to improved earnings, contained dividend payments and acquisitions, and the remainingcash proceeds from E&P disposals nowexpectedin2023.

Enel SpA BBB+/Stable/A-2 We expect Enel's key credit measures to continue gradually improving from 2020 onward, thanks to earnings growth stemming mostly from additional renewables capacity and sustainably high investments in networks. We forecast adjusted EBITDA to increase to about €19.7 billion in 2022, compared with €16.8 billion in 2019. Adjusted debt will increase to about €59 billion in 2022 from €54.9 billion in 2019, due to negative free cash flow after capex and dividends, which we expect to average €1.8 billion over 2020-2022. We anticipate that Enel's adjusted funds from operations (FFO) to debt will increase from 22.5% in 2019 to about 25% in 2022, thanks to increasing EBITDA, which will more than offset the expected increase in adjusted debt. We also forecast that adjusted debt to EBITDA will slightly decrease to about 3.1x in2022, compared with 3.3x in2019. *Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

27 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom* Eni SpA A-/Negative ENI flexible and conservative financial policies support the rating in the near term, notwithstanding the fact that the higher upstream exposure puts operating cash flow at risk. Eni's exposure to oil and gas is significant, representing virtually all of the group's adjusted operating profit in 2019. We anticipate cash flow from operations to fall below €9 billion (about €12.5 billion in 2019) and FFO to debt to be about 35% in 2020. Still, the share buyback program has already been paused, and the rapid measures, coupled with further opportunities to mitigate the fall in cash flows such as capex flexibility, support a return to 45% FFO to debt by 2021. There is uncertainty about how hard the downstream operations in Italy will be hit. They represent less than 10% of group cash flows, so it is more important that we see anoilprice improvement inline with our base case to support metrics improvements. Esselunga BB+/ The recently completed squeeze-out of Supermarkets Italiani's (Esselunga's parent) 30% minority Stable shareholders for a total consideration of €1.8 billion, will consolidate the group's ownership, at the cost of a more leveraged capital structure. At the same time, Esselunga's defensive offering could support its topline in case of a downturn of the Italian economy, although the upside could be limited by the social distancing measures and lowe r profitability from online sales. We believe Esselunga will be able to maintain its established market position in its core food retail business, increasing its gross revenues by around 2%-3% through new store openings, as well as new product launches and price supremacy.

EVOCA SpA B/Negative Evoca is the world’s largest manufacturer of professional coffee machines. Underlying positive trends in the out-of-home coffee consumption will likely turn negative in 2020 due to social distancing measures imposed by governments to contain Covid-19 pandemic. Therefore, we see reducing demand for coffee machine in the HoReCa segment. Evoca has sufficient amount of cash on B/S to withstand with the current situation and adequate covenant headroom. However, we estimate that leverage could exceed 10x in 2020 and see the risk it could take time to return to the 8.0x-8.5x range (including the PIK notes issued atparent level).

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

28 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom* Fabric (BC) SpA B/Stable We believe that the COVID-19 pandemic has had a significant negative impact on paper and label producer Fedrigoni’s operations. The closure of offices and schools, and cuts in advertising spend have accelerated the structural decline in demand for graphic paper (56% of revenues). We expect this to lead to a like-for-like revenue decline of about 20% in 2020. However, we expect overall revenue growth of 20% in 2020 due to the impact of the acquisition of Ritrama (completed early 2020), which operates in the more resilient label segment (32% of revenues in 2019). We consider rating headroom to be limited, particularly if operating performance in the paper segment continues to deteriorate resulting, for example,insustained high leverage and negative FOCF.

F-Brasile SpA B-/Negative COVID-19 pandemic exacerbated company’s narrow platforms’ cov e rage as well as its high exposure to wide-body engines. The civil aerospace sector has been severely impacted by the COVID-19 pandemic. With OEM's Airbus and Boeing both materially reducing production, FB's key customer Rolls-Royce has also materially decreased production of engines. In turn, this will affect FB's production volumes, revenue, and absolute EBITDA, putting pressure on its adjusted credit metrics. As such, we expect debt to EBITDA to rise to about 10.0x in 2020 from 6.7x in 2019. While FB has effectively cut costs and taken measure to protect cash flow, we view rating headroom as limited, as we see limited prospects for the group to generate material positive FOCF and reduce leverage without a substantial business reorganization.

Ferrovie delle Stato BBB/Negative Our rating on FSI mirrors our sovereign credit rating on Italy because of FSI’s strong reliance on public Italiane grants and our view that there is an extremely high likelihood that the government of Italy would provide extraordinary support to FSI if needed. The COVID-19 pandemic is placing a huge strain on rail travel and we expect the recovery will be lengthier than we previously anticipated, particularly in certain business segments more exposed to volume risk. Hence, our outlook on FSI has not been immediately affected by the revision of the outlook on Italy to stable from negative on Oct. 23, 2020. This is because a potential revision of the outlook on FSI to stable would require us to have visibility over the group's ability to sustain the impact of the pandemic with no downside risk to its stand-alone credit profile.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

29 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom*

Fire (BC) S.a r.l. B-/Stable Specialty chemicals manufacturer Fire (BC) has about 15% of sales exposure to the oil and gas (O&G) industry, which have been deeply affected by the oil price war and COVID-19 pandemic. It also has exposure to other cyclical end-markets such as construction and electronics. We expect adjusted leverage to be in excess of 8.0x this year. Therefore, in April 2020 we lowered our ratings on the company to ‘B-‘. Positively, after the completion of major capital expenditure (capex) programs in 2019, we expect FOCF will turn slightly positive in 2020. We expect that liquidity will remain adequate. However, we consider rating headroom to be limited, particularly if operating performance further deteriorates, leadingto negative operatingcash flows and weakeningliquidity.

Gamma Bidco B/Negative Although the group has shown positive momentum in recent weeks as COVID-19-related lockdowns have eased, we expect challenging operating conditions will weigh materially on the group's earnings, and in 2020 we expect our adjusted leverage for Gamma Bidco will be about 7x and adjusted free operating cash flow to debt of about 5%. We could lowe r our ratings if the impact of COVID-19 or deteriorating macroeconomic conditions prevent the company from demonstrating adjusted credit ratios in line with our base-case assumptions of adjusted lev e rage of about 7x and FOCF to debt of about 5% in2020, before improvingto below5x and above 8%, respectively,in2021.

Guala Closures SpA B+/Stable 84% of closures manufacturer Guala Closures’ revenues relates to spirits and wines. Both segments are heavily reliant on the bar and restaurant channel, which was materially negatively impacted by the COVID-19 pandemic (and the related social distancing measures). This was only partly offset by higher sales to supermarkets. We thereby expect Guala Closures’ like-for-like revenues will drop by about 10% in 2020. The contribution of Closurelogic (acquired in February 2020) will add around €40 million in sales in 2020 and limit the year on year revenue decline to 4%. We anticipate that leverage will slightly increase to about 4.9x and FOCF will remain positive in 2020. We consider rating headroom to be adequate as we expect revenue growth to recover in 2021, strengthening FOCF generation and supporting anadequate liquidity.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

30 Italian Rated Companies | Rating Headroom Company name Rating Comments Rating headroom* Hera SpA BBB/Positive/A-2 We acknowledge the resilient nature of Hera's business, supported by the limited exposure to declining power prices of the waste-to-energy plants, with no direct exposure to generation capacity. We expect operating conditions to return to normal in Italy in 2021. After the annual drop of about 8% that we expect for 2020, 2021 power and gas volumes sold should also normalize. We expect adjusted funds from operations (FFO) to debt (including income from last-resort clients) to remain above 23% over 2021-2022, compared with 24.3% in 2019. However, we note that COVID-19 will drive down expected earnings for 2020, and we expect adjusted FFO to debt (including income from last-resort clients) to fall below23% in2020.

Immobiliare Grande BB+/Negative Though the situation has improved in the third quarter of the year, our negative outlook capture the Distribuzione SIIQ possibility that IGD´s operating performance remains under pressure due to restrictions linked to S.p.A Covid-19, which would limit footfall in its assets and affect tenant sales, ultimately impacting IGD´s rental income. We expect a significant impact on its rental income (like-for-like decline up to -15%- 20%) for 2020 due to the closures and the subsequent negotiation with tenants. We also expect asset values to decline up to 10%. IGD reported in H1 2020 a 17.9% like for like decline in net rental income compared to H1 2020 as the impact from Covid-19 has been around €8.5 million for the period. We anticipate the situation to remain subdued in 2021, with minimal recovery in NRI (0 to 5%) and potentially more decline invaluation(up to -5%).

Infrastrutture BB+/Stable We believe that management will smoothly execute the merger of TIM's and Vodafone's tower Wireless Italiane portfolios, and lev e rage the extended network sharing opportunities, as we ll as INWIT's very strong S.p.A market position and favorable MNO market context, to generate new revenues on 4G sites densification and the 5G rollout kickoff. We also anticipate continuation of the solid operating efficiency track record, and the successful execution of cost synergies allowed by the merged network optimization. The tower industry enjoys very supportive credit characteristics, reflecting the sector's low volatility and cyclicality, and the high predictability of cash flows, given its critical infrastructure nature. This is further supported by typically long-term contracts between tower companies and TLC carrier customers; very high barriers to entry; and the very difficult replication ofestablished networks.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

31 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom

International Design B/Negative IDG is a global high-end lighting and furniture company, formed in December 2018 through the Group S.p.A. consolidation of Flos, B&B Italia, and Louis Poulsen. Both consumer and commercial segments will experience material decline as consumer will cut back on discretionary spending with the latter suffering the most as commercial clients (including airports, stores, hotels, and restaurants) are likely to delay their remodeling projects. Outlook revised to negative because lev e rage will likely exceed 6.5x and interest cov e rage metrics could deteriorate below 2.0x in 2020. However, the company has adequate covenant headroom and enough cash onbalance sheet to avoidshort term liquidity strain.

Leonardo SpA BB+/Stable Leonardo good rating leeway for the 'BB+' rating sustains the stable outlook. In our updated base case for 2020, we forecast FFO to debt at about 25% assuming an uptick already in the second half of the year. At this stage, we consider that the COVID-19 pandemic has neutralized Leonardo's positive momentum and 2021 financial and operating performance will be pivotal for regaining the financial flexibility the group has lost in 2020. We see as supportive for the rating Leonardo’s exposure to the defense business which represents the vast majority of its revenues and EBITDA. However, uncertainties are remaining on the civil business which has been impacted more prominently by COVID-19.

Lima Corporate B-/Stable Lima Corporate is a medical equipment company that designs, manufactures, and sells orthopedic implants. We expect a steep decline in orthopedic surgeries in 2020 since non-essential medical procedures have been suspended in order to prioritize the treatment of COVID-19 patients. Cost control measurers should allow the company to avoid material deterioration of EBITDA margin which we forecast at 20% in 2020 vs. 22-23% in 2019 supporting good level of liquidity and covenant headroom. However, S&P adjusted debt to EBITDA is expected to exceed 10x in 2020 and to remain above 7.0x in2021.

32 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom*

Marcolin SpA B-/Negative Marcolin is a designer, manufacturer, and distributor of prescription and sunglasses frames, and the fourth-largest player globally. The shutdown of optical retailers due to COVID-19-related confinement measures has disrupted Marcolin's distribution activities. Marcolin will likely see lower demand from optical retailers across Europe and U.S. In our view, optical retailers, particularly the smallest players, could face financial and liquidity strain prompting them to prioritize de-stocking and streamlining the product offering to support their liquidity. We estimate Marcolin's leverage, as adjusted by S&P Global Ratings, will approach 9.5x-10.0x atend-2020.

MM SpA BBB/Stable/A-2 We expect that MM will continue to deliver solid operating performance, despite a contained negative effect from the COVID-19 pandemic this year, notably due to lowe r water volumes and a negative working capital evolution. MM's earnings are not directly linked to volumes consumed but are regulated, with remuneration calculated based on the asset base. The MTI-3 new regulatory period for water distribution started in 2020 and will last four years, supporting MM's earnings stability over 2020-2023, and will cover COVID-19-related special costs. We expect MM to post negative work ing capital in 2020 due to longer days of receivables but maintain adjusted FFO to debt of about 20% and debt to EBITDA of about 3.5x, inline with the group “bbb+” SACP

Moby SpA SD The downgrade follows Moby's announcement of a standstill agreement with an ad-hoc group of bondholders and a further standstill request to SFA lenders. Moby decided to defer payments on its €300 million notes due 2023 and €200 million term loan and €60 million revolving credit facilities due 2021, which we now rate 'D'. The recovery rating on these obligations remains unchanged at '2' and continues to reflectour expectation ofmaterial (85%) recovery inthe eventofa conventional default.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

33 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom* Piaggio & C. S.p.a. B+/Negative Sales growth and EBITDA in the third quarter (Q3) 2020 evolved better than we had expected in our base case, meaning the company is better positioned to withstand the potentially negative economic effects of increasing COVID-19-related restrictions under its 'B+' rating. As a result, we now expect an S&P Global Ratings-adjusted EBITDA margin at about 11.5%-12.0% for 2020, just slightly weaker than 2019 levels, which stood at 12.4%. Moreover, Piaggio's liquidity has stabilized in Q3 after a difficult Q2 due to a normalization of its working capital cycle after the lockdown months of April and May. As of Sept. 30, 2020, we continue to regard Piaggio's liquidity asadequate.

Pro.GestSpA CCC+/ We consider rating headroom to be low, especially if liquidity deteriorated or there is any covenant Negative breach. In June 2020, we downgraded Pro.Gest to ‘CCC+’ due to liquidity concerns. Pro.Gest’s credit metrics have deteriorated since 2019 when operating performance weakened amid an unfavorable pricing environment and material working capital outflows. In 2019, the company was also fined by the Italian antitrust authorities and operations at its mill at Mantova we re suspended by local authorities. The COVID-19 pandemic has so far had a moderate impact on Pro.Gest’s performance as about 65% of its revenues relate to the more stable food and pharma end-mark ets. Due to somewhat lowe r volumes in Q2’20 (as severe social distancing measures undermined demand in some less resilient segments) and lower average sellingprices in2020, we expectrevenuesto decline by about 8% in2020.

Rekeep S.p.A B/Negative Facility Management Company Rekeep displays some operational uncertainty on volumes across the public and private sectors due to increasing social distancing measures. The company has seen strong demand across its healthcare clients (representing 63% of Q2’20 revenues) and the higher margin laundry and sanitization business in H1 to be able to minimize covid-19 impact thus far. Our negative outlook indicates the limited rating headroom due to the tightening credit metrics and volume uncertainty during 2020 and our expectation that FOCF will be temporarily negative due to the operational impact ofCOVID-19.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

34 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom*

Rossini Acquisition B/Stable Rossini controls through FIMEI SpA, 51.82% of Recordati, a specialty pharmaceutical company Sarl dedicated to developing, manufacturing, and marketing pharmaceuticals for specialty and primary care, as well as orphan drugs for the treatment of rare diseases. The COVID-19 outbreak had animpact on Recordati's performance in the second quarter of 2020 but its products portfolio for the treatment of chronic disease has proven resilient to the pandemic. We note that during the lockdown period, populations across Europe have been less affected by seasonal diseases, while many product categories suffered from the reduction of procedures in hospitals and clinics. We do not expect material deterioration of credit metrics in 2020 and we forecast S&P adjusted EBITDA Margin in the range of38-38.5% and FFO to debt of8-10% which iscommensurate with the current rating.

Saipem SpA BB+/Stable Saipem entered the current downturn with some headroom under the rating, but the ratios are likely to cross the rating threshold in 2020, before a potential recovery in 2021. Under our base case, the company's adjusted FFO to debt will be about 20% in 2020, which is below the 25% threshold that we view to commensurate with the current rating during the downturn. We expect Saipem's €22 billion backlog to weather the storm as oil prices remain subdued in the coming quarters. After reaching record highs in 2019, Saipem announced additional important awards in the first half of 2020, bringing its backlog to about €22 billion, proving a good visibility for its operations (70% of EBITDA) in the coming12-18 months.

Sisal Group S.p.A. B/Negative We expect the COVID-19 pandemic to cause a material deterioration of Sisal's operating performance in 2020, putting pressure to the group free operating cash flow. In our base-case for the ratings we expect adjusted leverage at 5.5x-6.2x in 2020 (assuming the RCF is used to pay for the NTNG license) and 3.4x-3.8x in 2021. We also expect adjusted FOCF to debt of between negative 15% and negative 13% in 2020 and positive 8%-6% in 2021. The negative outlook reflects uncertainty about the duration of the COVID-19 pandemic and its potential impact on Sisal's capital structure, liquidity, financial performance, and position in2020 and beyond.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

35 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom*

Sisal Pay Group BB-/Negative SisalPay's proximity-based business is exposed to social distancing, and economic recovery S.p.A. uncertainties remain. We anticipate SisalPay's revenue generation capacity to be negatively affected by COVID-19 in 2020, owing to the impact of social distancing figures in the first half of the year and depressed economic activity over the second half. We therefore forecast its EBITDA will be hit this year before gradually recovering in 2021. The negative outlook reflects material uncertainties regarding the economic impact of COVID-19 on the Italian economy, and the risk that it could negatively affect the company's cash flowprofile.

SNAM BBB+/Stable/A-2 Gas consumption decreased by about 11% during the first six-months on a year-on-year comparison in 2020, due to COVID-related measures. The effect on Snam’s earnings should be very limited given the very low volume sensitivity in the gas transmission remuneration formula. Nonetheless, we expect revenues to increase, mainly driven by increased regulatory asset base as a result of investments. We also do not expect deviations from our forecasted capex at abut €1.3 bil. for 2020, as we expect capex to ramp up significantly during last six months of 2020. As a result, we expect Snam to maintain its headroom towards the downside trigger, with FFO to debt in the range of 13.5% to 14.5% over 2020- 2022.

Società BBB-/Positive/A-2 Credit quality of SMAT's main shareholder Turin has improved on the back of an increased liquidity, Metropolitana Acque and we believe a decision on SMAT's legal status will most likely be finalized in 2020. This is because Torino SpA we expect the vote at SMAT's general assembly on the legal change of status to take place over the coming months, based on the results of the independent feasibility study. We also expect SMAT to maintainits good performance, with FFO to debt atabout 40% and debt to EBITDA below2.0x. We could upgrade SMAT in the next 12-24 months should we see a remote risk of the company being transformed into a consortium, which would depend on the vote on the change of legal status. We could also upgrade SMAT if we continue to see resilience inTurin's creditworthiness.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

36 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom* Specialty Chemicals B+/Stable We believe the global COVID-19 pandemic and resulting recessionary environment will result in lowe r International B.V. market demand and reduced sales for SCI in 2020. We expect the low oil price to support SCI's margins in 2020, but it will also lead to lowe r earnings. As reflected in the stable outlook, we expect adjusted FFO to debt to weaken to below 20% in 2020 but remain comfortably within the 12%-20% range commensurate with the rating. Moreover, we expect SCI will be able to maintain its solid FOCF generation, given its flexibility to postpone growth capital expenditures under challenging market conditions and ability to reduce working capital ifsales decline.

Telecom Italia SpA BB+/Negative We expect adjusted leverage will temporarily peak in 2020, at nearly 4.2x, while the top-line will decline by about 11% in 2020. We expect fierce competition in the Italian mobile and fixed-line markets will remain, despite calmer churn and promotions during the COVID-19 pandemic. Operational stabilization, marked by improved quarter-on-quarter performance in domestic fixed-line, combined with disposal proceeds from agreed transactions, should improve cash flow deleveraging from 2021. That said, mark et uncertainty creates downside risk to our forecast, and there are potential transactions that have yet to be finalized that add event risk. We could lower the ratings if leverage cannot be sustained below 4.2x in 2020, or if leverage is not falling to 4x in 2021 and sustainably below thereafter.

Terna SpA BBB+/Stable/A-2 In Italy, electricity consumption is expected to decrease by 8%-10% this year, but the effect on Terna's results should be very limited. We note Terna's remuneration is almost insulated from volume risk, with limited-to-no impact expected on revenues for 2020. We foresee limited effect on net working capital caused by the COVID-19 pandemic, as power distributors in Italy are currently paying without delay. In addition, we do not expect a material delay in capex. As part of the 2021-2025 strategic plan, Terna announced an increase in investments. As a result, we expect credit metrics to weaken, specifically adjusted funds from operations (FFO) to debt falling to 14.5%-15% in 2020 and then to 13%-14% in 2021-2022. At the same time, debt to EBITDA will be we ll below 6x, commensurate with the 'a-' SACP.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

37 Italian Rated Companies | Rating Headroom

Company name Rating Comments Rating headroom*

Webuild S.p.A. BB-/ CreditWatch Ratings have been on CreditWatch with negative implications since March 2020. The pandemic has Negative severely affected WeBuild performance. It pushed governments across the world to suspend construction projects, which resulted in a slowdown in production in the first half of 2020. Reported revenue decreased by more than 18% to about €2.2 billion. At the same time, EBITDA dropped by more than 50%, mainly due to slowing higher-margin projects and lower absorption of fixed costs. Positively, Italian government measures for the construction sector should help WeBuild boost its cash generation in the second part of the year. We consider rating headroom to be low, especially if free operatingcash flows failsto recoverinthe comingquarters, and if liquidity weakens.

*Colors of the rating headroom refer to the outlook and creditwatch. Grey refers to stable outlook or credit watch developing, organge to negative outlook, red to creditwatch negative or SD and blue to positive outlook or creditwatch positive.

38 Italian Corporates | Ratings Action To Oct. 31, 2020 (1/2)

Date Company Sector Rating Action To From Jan. 13 Aeroporti di Roma SpA Transportation infrastructure Downgrade BB+/Watch Neg/B BBB/Negative/A-2 Jan. 12 Autostradeper l’Italia Transportation infrastructure Downgrade BB-/Developing/B BBB-/Watch Neg/A-3 Jan. 12 Atlantia SpA Transportation infrastructure Downgrade BB-/Watch Neg/B BBB-/Watch Neg/A-3 Feb. 14 Moby SpA Transportation Downgrade SD/--/-- CCC-/Negative/-- Feb. 17 Specialty Chemicals International B.V. Chemicals Outlook revision B+/Positive/-- B+/Stable/-- Feb. 28 Pro.Gest SpA Forest products Downgrade B-/Watch Neg/-- B/Watch Neg/-- Immobiliare Grande Distribuzione SIIQ March 23 Real estate Downgrade BB+/Negative/-- BBB-/Negative/-- SpA March 24 Webuild S.p.A. Construction CreditWatch placement BB-/Watch Neg/-- BB-/Positive/-- March 25 Eni SpA Oil and gas Outlook revision A-/Negative/A-2 A-/Stable/A-2 March 25 Piaggio & C. S.p.a. Automotive Downgrade B+/Negative/-- BB-/Stable/-- March 27 Specialty Chemicals International B.V. Chemicals Outlook revision B+/Stable/-- B+/Positive/-- March 28 Esselunga SpA Retailing Downgrade BB+/Stable/-- BBB-/Watch Neg/-- March 31 International Design Group Consumer Outlook revision B/Negative/-- B/Stable/-- April 1 EVOCA SpA Consumer Outlook revision B/Negative/-- B/Stable/-- April 7 Fire (BC) S.a r.l. Chemicals Downgrade B-/Stable/-- B/Stable/-- April 16 Amplifon Spa Healthcare Outlook revision BB+/Negative/-- BB+/Stable/--

39 Italian Corporates | Ratings Action To Oct. 31, 2020 (2/2)

Date Company Sector Rating Action To From April 20 Lima Corporate SpA Healthcare Downgrade B-/Stable/-- B/Stable/-- April 20 Marcolin SpA Consumer Downgrade B-/Negative/-- B/Stable/-- April 22 Leonardo SpA Aerospace and defense Outlook revision BB+/Stable/B BB+/Positive/B April 22 Rekeep SpA Business services Outlook revision B/Negative/-- B/Stable/-- Apr 24 Guala Closures SpA Packaging Outlook revision B+/Stable/-- B+/Positive/-- May 4 Gamma Bidco SpA Entertainment Downgrade B/Negative/-- B+/Watch Neg/-- May 5 Sisal Group S.p.A. Entertainment Downgrade B/Negative/-- B+/Negative/-- May 12 Sisal Pay Group S.p.A. Financial services Outlook revision BB-/Negative/B BB-/Stable/B June 9 Pro.Gest SpA Forest products Downgrade CCC+/Negative/-- B-/Watch Neg/-- June 29 F-brasile SpA Aerospace and defense Downgrade B-/Negative/-- B/Stable/-- Aug 12 Aeroporti di Roma SpA Transportation infrastructure Outlook revision BB+/Developing/B BB+/Watch Neg/B Aug 12 Atlantia SpA Transportation infrastructure Outlook revision BB-/Developing/B BB-/Watch Neg/B Aug 12 Autostrade per l’Italia Transportation infrastructure Outlook revision BB-/Developing/B BB-/Watch Neg/B Oct. 6 Telecom Italia SpA Telecommunications Outlook revision BB+/Negative/B BB+/Stable/B Oct. 27 MM SpA Utilities Outlook revision BBB/Stable/-- BBB/Negative/-- Oct. 27 SNAM Utilities Outlook revision BBB+/Stable/A-2 BBB+/Negative/A-2 Oct. 27 Terna SpA Utilities Outlook revision BBB+/Stable/A-2 BBB+/Negative/A-2

40 Appendix Methodology For Credit Metrics Calculation Slides 14-19 Charts | Methodology For Credit Metrics Calculation

Rated Italian Companies By Sector Key comments on methodology

– Downside scenario definition: We assume a significant slowdown of the recovery during Q4 2020 and Q1 2021; recovery Commodities and would regain momentum from Q2 2021. This translated into a materials 15% revenue decline of 10% in 2020 (versus 8% in our base case), 20% followed by a rebound of 5% in 2021 and in 2022 (versus 7% and Consumer goods 4% in our base case, respectively). Adjusted debt to EBITDA and EBITDA margin would recover to 2019 levels in 2023; that is, one Infrastructure year later than our base-case scenario. 20% – Slides 14-19: metrics are based on our forecast on rated Italian 15% companies (43). Data displayed is the arithmetic average. Manufacturing – Revenues and capex year-on-year change: data exclude first and last decile of companies’ distribution. Services 10% – Slide 16: The average adjusted debt to EBITDA and EBITDA margin 22% at the end of 2019 stood respectively at: 4.1x and 17.4% for Utilities commodities and material, 6.5x and 22.9% for consumer goods, 4.4x and 14.4% for manufacturing, and 3.8x and 26.9% for utilities. – In the chart to the left, we provide the breakdown of rated

Source: S&P Global Ratings. companies by sector.

42 Italian Corporates Rating Snapshot | High Share of Companies With High Debt

1. Rating Category Distribution 2. Rating Outlook Distribution

A 2% Positive 11% BBB 23%

BB 28% Stable 47% B 40%

CCC 5% Negative 42% SD 2%

0 5 10 15 20 25 30 35 40 45 0 10 20 30 40 50

3. Business Risk Profile Distribution 4. Financial Risk Profile Distribution

Excellent 10% Minimal 2%

Strong 17% Modest 5%

Satisfactory 17% Intermediate 14%

Fair 31% Significant 21%

Weak 24% Aggressive 19%

Vulnerable 2% Highly Leveraged 38%

0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35 40

Source: S&P Global Ratings. Data as of Oct. 31, 2020. The sample includes 43 Italian rated companies.

43 Analytical Contacts

Renato Panichi Arianna Valezano

Senior Director – EMEA Corporate Ratings Associate – EMEA Corporate Ratings

Milan Milan

[email protected] [email protected]

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