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Italy-Based Safilo SpA Rating Cut To 'CC' On Efforts To Defer The June Payment Of Principal On Loan; Outlook Negative
-- Safilo is in discussion with its senior lenders regarding a deferral of the payment of the amortizing Facility A of its senior bank loan.
-- In our view, Safilo's financial flexibility is fragile and the company urgently needs to secure its liquidity position.-- We are lowering to 'CC' from 'CCC+' the long-term corporate credit rating on Safilo.
-- The negative outlook reflects Safilo's stretched liquidity level, which could trigger a default in the very near future.
LONDON (Standard & Poor's) June 24, 2009--Standard & Poor's Ratings Services said today that it lowered to 'CC' from 'CCC+' its long-term corporate credit rating on Italy-based eyewear manufacturer Safilo SpA.
The outlook is negative. At the same time, we lowered to 'C' from 'CCC' the issue rating on the €195 million 9.625% second-lien notes due 2013 issued by Safilo Capital International S.A. The recovery rating on the debt is unchanged at '5', indicating our expectation of modest (10%-30%) recovery in the event of a payment default.
In addition, Standard & Poor's removed all ratings from CreditWatch, where they were placed with negative implications on Feb. 13, 2009. The downgrade follows Safilo's announcement on June 23, 2009, that it is in discussion with its senior lenders regarding a covenant amendment and a deferral of the June 30, 2009, payment of the amortizing facility A of its senior bank loan due in December 2011.
"In our view, this request reflects Safilo's increasingly fragile position due to ongoing operating underperformance and the need to secure its liquidity position," said Standard & Poor's credit analyst Diego Festa.
According to Safilo's unaudited results, net sales in the first quarter of financial 2009 were down by 11.7% year on year, and EBITDA was down by 35.4%. The EBITDA margin fell 380 basis points to 10.5%.
In light of falling revenues, Safilo's high fixed costs--including those for marketing, staff, and operating leases--weigh even more heavily on profitability. In the same period, free operating cash flow was negative at €42.8 million from negative €17.4 million in 2007. This decline was the main cause of an increase in reported net debt to €617.7 million from €570.0 million on Dec. 31, 2008.
On March 31, 2009, the annualized ratio of reported net debt to EBITDA was 5.6x.
We could lower the ratings to 'D' (default) or 'SD' (selective default) if Safilo were to fail to meet any of its obligations. We could also lower the corporate credit ratings to 'D' upon a completion of a distressed exchange offer, which under Standard & Poor's methodology means any offer constituting less than the original promise without adequate offsetting compensation.
A positive rating action could occur if Safilo secures the necessary funding to mitigate the current negative cash flow trends and pressure on its liquidity position
Italy-Based Safilo SpA Rating Cut To 'CC' On Efforts To Defer The June Payment Of Principal On Loan; Outlook Negative
-- Safilo is in discussion with its senior lenders regarding a deferral of the payment of the amortizing Facility A of its senior bank loan.
-- In our view, Safilo's financial flexibility is fragile and the company urgently needs to secure its liquidity position.-- We are lowering to 'CC' from 'CCC+' the long-term corporate credit rating on Safilo.
-- The negative outlook reflects Safilo's stretched liquidity level, which could trigger a default in the very near future.
LONDON (Standard & Poor's) June 24, 2009--Standard & Poor's Ratings Services said today that it lowered to 'CC' from 'CCC+' its long-term corporate credit rating on Italy-based eyewear manufacturer Safilo SpA.
The outlook is negative. At the same time, we lowered to 'C' from 'CCC' the issue rating on the €195 million 9.625% second-lien notes due 2013 issued by Safilo Capital International S.A. The recovery rating on the debt is unchanged at '5', indicating our expectation of modest (10%-30%) recovery in the event of a payment default.
In addition, Standard & Poor's removed all ratings from CreditWatch, where they were placed with negative implications on Feb. 13, 2009. The downgrade follows Safilo's announcement on June 23, 2009, that it is in discussion with its senior lenders regarding a covenant amendment and a deferral of the June 30, 2009, payment of the amortizing facility A of its senior bank loan due in December 2011.
"In our view, this request reflects Safilo's increasingly fragile position due to ongoing operating underperformance and the need to secure its liquidity position," said Standard & Poor's credit analyst Diego Festa.
According to Safilo's unaudited results, net sales in the first quarter of financial 2009 were down by 11.7% year on year, and EBITDA was down by 35.4%. The EBITDA margin fell 380 basis points to 10.5%.
In light of falling revenues, Safilo's high fixed costs--including those for marketing, staff, and operating leases--weigh even more heavily on profitability. In the same period, free operating cash flow was negative at €42.8 million from negative €17.4 million in 2007. This decline was the main cause of an increase in reported net debt to €617.7 million from €570.0 million on Dec. 31, 2008.
On March 31, 2009, the annualized ratio of reported net debt to EBITDA was 5.6x.
We could lower the ratings to 'D' (default) or 'SD' (selective default) if Safilo were to fail to meet any of its obligations. We could also lower the corporate credit ratings to 'D' upon a completion of a distressed exchange offer, which under Standard & Poor's methodology means any offer constituting less than the original promise without adequate offsetting compensation.
A positive rating action could occur if Safilo secures the necessary funding to mitigate the current negative cash flow trends and pressure on its liquidity position
