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Rating Action:

Moody's upgrades Safilo to B3; Stable outlook (Italy)

18 Feb 2011

Approximately EUR195 million of debt rated

Milan, February 18, 2011 -- Moody's Investors Service has today upgraded Safilo's corporate family rating (CFR) and probability of default rating (PDR) to B3 from Caa1. At the same time, the senior unsecured rating on the outstanding EUR195 million notes due 2013 (EUR185 million after the buyback operated by Safilo towards the end of 2010) was upgraded to Caa2 from Caa3. The outlook on the ratings is stable.

RATINGS RATIONALE

"The upgrade of Safilo's ratings reflect the improvement in the group's operating performance during the first nine months of FYE December 2010, a degree of recovery in market conditions and the expectation that key credit metrics will continue to support the rating going forward", says Paolo Leschiutta, a Moody's Vice President-Senior Analyst and lead analyst for Safilo.

During the nine months to 30 September 2010, Safilo reported revenues of EUR818.2 million and EBITDA of EUR82.5 million, up 5.6% and 50%, respectively, compared to the same period in 2009 (excluding non-recurring items). According to Moody's, this result was due to a combination of improved operating efficiency, thanks to increased utilisation of production capacity, and recovery in consumer demand, in particular for sunglasses.

As a result of this and thanks to a significant reduction in financial debt, Safilo's credit metrics have improved significantly. The debt reduction followed the capital restructuring and the capital injection of approximately EUR270 million in early 2010 -- the proceeds of which were mainly utilised to pay down debt. In particular, financial leverage, measured as Debt to EBITDA (adjusted for operating leases and pension liabilities, and excluding restructuring costs), stood at ca. 4.3x on an LTM basis as at September 2010. Moody's would expect Safilo to maintain a financial leverage around 5x and a retained cash flow (RCF) to net debt around 10% over the short-term, with further upside potential over the medium term.

In addition to Safilo's improved credit metrics, Moody's also recognises the strengthening liquidity profile of the group. As at September 2010, Safilo had available EUR83.6 million of cash on balance sheet and, following the capital restructuring and subsequent renegotiation of key terms of the main bank facilities in early 2010, has a EUR200 million revolving credit facility expiring in June 2015 which is currently not utilised. These facilities and the cash on balance sheet are deemed sufficient to cover approximately EUR55 million of short-term debt as at September 2010 (most of which represented by factoring lines which are expected to be renewed), and capital investments expected around EUR30 million going forward (investments were EUR18.7 million during the nine months to September 2010). Furthermore, Moody's would expect the company to generate positive free cash flow for the FYE 2010. Moody's notes that the renegotiated bank facility (including the revolver mentioned above, and the EUR100 million facility expiring in 2012 and 2014) contains some financial covenants, which, however, will not be tested until June 2012, and Moody's would expect the company to maintain adequate headroom at all times.

Moody's notes, however, that despite a general recovery in market conditions, particularly in consumer spending, consumer sentiment remains weak with significant regional variations. Therefore, in light of the ongoing difficulties at the sovereign level in selected countries, we would expect the recovery to remain volatile over the short to medium term. Nevertheless, the stable outlook on Safilo's ratings reflects Moody's expectation that the company's key credit metrics will support the existing ratings and will gradually improve over time, thus further strengthening the company's position within its rating category. The stable outlook also assumes that Safilo will maintain an adequate liquidity profile and a conservative financial policy going forward.

On the one hand, positive pressure could be exerted on Safilo's ratings if the company improves its operating performance demonstrated by an improving EBITA margin towards high single digit, Debt to EBITDA around 4.5x and an RCF to net debt above 10%. An upgrade would also reflect a conservative financial policy and a strong liquidity profile (in consideration also of the EUR75 million term loan maturing in June 2012). On the other hand, Safilo's ratings would come under negative pressure in the event of deteriorating operating performance signalled by an EBITA margin dropping below 5% or Debt to EBITDA staying above 6x. The ratings could also be downgraded in case of a deterioration in the company's liquidity profile or a negative change in Moody's perception of market conditions.

The ratings upgraded today are:

..Issuer: Safilo S.p.A.

.... Probability of Default Rating, Upgraded to B3 from Caa1

.... Corporate Family Rating, Upgraded to B3 from Caa1

..Issuer: Safilo Capital International SA

....Senior Unsecured Regular Bond, Upgraded to Caa2, LGD5, 83% from Caa3, LGD5, 85%

The last rating action on Safilo was on 9 March 2010 when Moody's upgraded the company's CFR and PDR to Caa1, respectively from Caa2 and Caa3. At that time, the rating agency also changed the outlook on the ratings to positive from stable, thereby concluding the rating review for possible upgrade that had been initiated on 10 December 2009.

The principal methodology used in this rating was Moody's Global Consumer Durables Rating Methodology, updated and published in October 2010.

Headquartered in Padua, Italy, Safilo is the world leader in the premium eyewear sector, offering a strong portfolio of both owned and licensed brands. The group sells sunglasses, prescription glasses and sport-specific eyewear in over 130 countries. As at FYE December 2009, revenues stood slightly above EUR1 billion and, for the nine months to September 2010, the company reported revenues of around EUR818 million.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Milan
Paolo Leschiutta
Vice President - Senior Analyst
Corporate Finance Group
Moody's Italia S.r.l
Telephone:+39-02-9148-1100

Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Moody's upgrades Safilo to B3; Stable outlook (Italy)
No Related Data.
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