(Bloomberg) -- Telecom Italia SpA has started an offer to move some of its euro and dollar denominated bonds to the unit that’s set to buy the firm’s network. 

The Italian carrier is inviting holders of €5 billion ($5.3 billion) worth of notes to swap them for new securities with the same terms that will sit under the new grid company that will be controlled by KKR & Co Inc., Telecom Italia said in a statement on Thursday. The notes will be mandatorily exchanged if the sale of the grid is completed by Oct. 15. 

Telecom Italia’s euro-denominated bonds due 2028 rose 0.4 cents on the euro to 105.6 cents after the announcement, according to data compiled by Bloomberg.

Bondholders exchanging the notes “are set to receive security pari passu with banks, and a Ba1 rating from Moody’s that’s better than legacy Telecom Italia is likely to offer,” Bloomberg Intelligence’s Aidan Cheslin wrote in a note. 

However, there are no forward-looking financial information for the new company “particularly pertaining to leverage policies,” Cheslin said. “This is a concerning omission considering lack of covenant protection, likely negative free cash flow in the early years, and restructuring cost pressures.” 

According to a November investor presentation, up to €8.5 billion of Telecom Italia’s debt would be transfered to the new company.

Telecom Italia agreed last year to sell its landline network to KKR for about €19 billion plus earn-outs, and the transaction is expected to be completed by the end of this summer, with approval by European authorities still pending. However, some minority shareholders including Merlyn Partners and activist investor Bluebell Capital Partners are challenging the grid sale plan. 


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