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Global Credit Research - 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.
"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
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
The principal methodology used in this rating was Moody's Global
Consumer Durables Rating Methodology, updated and published in October
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.
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
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.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Italia S.r.l
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
Moody's upgrades Safilo to B3; Stable outlook (Italy)
Corso di Porta Romana 68
No Related Data.
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