Credit rating agency Standard & Poor's yesterday affirmed its long-term credit rating on Valentia Telecommunications, the consortium which owns Eircom.

The agency also assigned the same BB+ rating on the €1 billion bonds, which Eircom and Valentia launched yesterday as part of a major refinancing strategy.

But in a full review of the business, Standard & Poor's highlighted the high levels of debt as the main risk factor for the firm. The ratings agency also said it would be a challenge for the firm to improve profitability significantly in the future, as Eircom's core fixed-line business had limited growth potential given its already high market share.

On Monday, Valentia said it would increase Eircom's debt to about €2.4 billion through a €1 billion bond issue, enabling it to pay its shareholders €512 million.

The Standard & Poor's review also said Eircom would continue to face significant regulatory risks as the Commission for Communication Regulation (ComReg) is taking further action to increase competition. But the review of the Valentia business published yesterday also said the outlook for the firm was stable.

Mr Michael O'Brien, credit analyst at Standard & Poor's, said the ratings agency expected Valentia to remain covenant compliant assuming that Eircom does not deviate from its current business and financial plan.

"The ratings on Valentia are supported by the continuing strong market position and consequent strong profitability of Eircom's fixed-line business," said Mr O'Brien.

"The ratings also benefit from the significant improvement in Eircom's operational performance, following the closure and sale of a number of loss-making businesses since the takeover of Eircom by Valentia."