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ROME (Reuters) -Telecom Italia bonds and shares fell on Friday after ratings agency Moody's downgraded the phone group's credit rating for the second time in four months, pushing it further into junk territory .
Moody's on Thursday cut TIM's rating by one notch to 'B1', confirming a negative outlook, citing expectations that the former phone monopoly's leverage would remain high and free cash flow would stay negative over the next two to three years.
"The macroeconomic environment has deteriorated since we downgraded [Telecom Italia's] rating to Ba3 in March, reducing the visibility on Telecom Italia's operating performance and its expected deleveraging path", Moody's said.
TIM's stock fell as much as 2% to 0.2155 euros on Friday, close to a all-time low hit on Thursday.
Yields of Telecom Italia's bonds - which move inversely to price - were up across the curve, with the company's bond maturing in January 2033 yielding 7.2%, up from 6.995% at previous close.
With revenue and margins under pressure for years in its competitive domestic market, TIM is working on a revamp based on splitting off parts of its business as it strives to raise cash and cut its debt pile.
Such a plan mostly relies on a potential deal with state lender CDP, which aims to combine TIM's network infrastructure with that of rival fibre optic firm Open Fiber to create a unified national network champion under state control.
CDP, which is TIM second largest investor, owns 60% of Open Fiber.
TIM and CDP sealed a preliminary pact in May aimed reaching a binding deal by October. But analysts warned the collapse of the government and early election could hamper talks, which are complicated by valuation and regulations issues.
TIM's top investor Vivendi is seeking a valuation of at least 31 billions euro for TIM's fixed network assets, which include TIM's domestic access network and submarine cable unit Sparkle, a source close to the French media group had said.
A person familiar with the matter said CDP could submit a non-binding bid at the end of August.
(Reporting by Elvira Pollina, editing by Giulia Segreti and Keith Weir)