Telecom Italia says its financial and industrial position is "solid" after the operator had its credit rating cut to junk status by ratings agency Moody's.

Moody's cited Telecom Italia's failure to strengthen its balance sheet and the resignation of chairman and chief executive Franco Bernabe last week as reasons behind the downgrade.

The change, which comes after Standard and Poor's indicated it too could downgrade Telecom Italia to junk status, means the firm is stripped of its investment-grade ranking, making it more expensive to borrow money.

In a statement, Telecom Italia moved to reinforce its financial and industrial position, saying it had significantly reduced its net financial position and invested heavily in its operating countries.

Bernabe resigned at a board meeting after a failure to agree an action plan with shareholders over how to rescue the firm's net debt, which is around €30 billion.

"We are downgrading Telecom Italia's ratings primarily because the recent resignation of the CEO has increased uncertainty regarding the company's ability to strengthen its balance sheet sufficiently to mitigate the declining trend in its domestic revenues and EBITDA," said Carlos Winzer, Moody's lead analyst for Telecom Italia.

Telecom Italia said: "In response to Moody's downgrading, Telecom Italia emphasises that the Group is solid both industrially and financially, as demonstrated by its cash flow generation of €32 billion in the last five years.

"Over the same period of time, it has reduced its net financial position by €7.6 billion, while investing a total of €25 billion in the countries it operates in."

The downgrade is likely to come as a blow to Telefonica, which last month struck a deal to raise its stake in the holding company of Telecom Italia to 66 percent.

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