Fitch downgrades Tiscali short-term rating to C

Fitch Ratings said it downgraded Tiscali SpA's short-term rating to C from B following the publication of Tiscali's fourth quarter unaudited accounts. Fitch also affirmed its CCC long-term issuer default rating and Tiscali Finance SA's €209 million guaranteed notes at B- with a recovery rating of 2. The outlook is stable.

While Tiscali continued to expand sales and profits in 2005 and refocused resources on three core markets, its cash flow burn rate is not sustainable unless the company secures material new funding in the next few months, the agency said.

Tiscali's reported sales from ongoing operations increased by 13% in 2005 to €739 million from 2004, and reported EBITDA increased by 51% to €117 million over 2004. Notwithstanding this significant increase in profitability, Fitch said that after capital expenditures of €156 million, reduced working capital of €37.5 million and interest expenses of €28 million, Tiscali had negative cash flow generation in excess of €106 million during 2005.

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