According to rating agency S&P the recovery of European investment-grade telecoms operators is mostly over, but there are no signs of general deterioration in credit quality. The agency noted that a new wave of merger and acquisition activities started in 2005. The deals are mainly cash- and debt-financed. Some operators are looking for acquisitions to improve growth, leverage the balance sheet or use up excess cash. The agency said that most operators would remain in the same rating category even in the case of large cash-financed deals, though acquisitions in some cases result in more volatile earnings. As bidders are becoming more aggressive the agency sees a risk of overpaying. We remind that after Telefonica won the privatization tender for Cesky Telecom for CZK 82.6bn, both S&P and Fitch put Telefonica on credit watch for a possible downgrade. Source: Reuters