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Safilo S.p.A.: Fitch upgrades the rating

Padova, 31st March 2006 – Safilo Group, worldwide leader in the high-end and luxury eyewear sector, has learnt with satisfaction of Fitch’s decision to increase the corporate rating of the company to ‘BB-‘ with a stable outlook, from ‘B’; the rating of the 195 million Euro High Yield bond, 9.625% coupon expiring in 2013 issued by Safilo Capital International S.A. to ‘BB-‘ from ‘CCC+’, and the rating of the senior secured loan to ‘BB+’ from ‘BB-‘. The short term rating is confirmed at B.

The Company believes that this improvement of its rating reflects the Group’s greater financial stability following the listing on the Milan stock exchange.


The Safilo Group is leader in premium eyewear and in a leadership position in the sector of prescription sunglasses, fashion and sports eyewear.
Present on the international market through exclusive distributors and 28 subsidiaries in the principal countries (in U.S.A., Europe and Far East), Safilo distributes its own brand collections Safilo, Carrera, Smith, Oxydo, Blue Bay, as well as licensed branded collections, Alexander McQueen, Bottega Veneta, Boucheron, Christian Dior, Diesel, 55DSL, Emporio Armani, Giorgio Armani, Gucci, Imatra, Marc Jacobs, Max Mara, Oliver, Pierre Cardin, Polo Ralph Lauren, Stella McCartney, Valentino, Yves Saint Laurent. In addition the following are exclusively for the American market: Fossil, Juicy Couture, Nine West, Kate Spade, Saks Fifth Avenue, Liz Claiborne and J.Lo by Jennifer Lopez.

Safilo Group S.p.A.
Nicoletta Chinello
Tel. 0039 049.6985459

Correction: Fitch Upgrades Safilo S.p.A. and Senior Notes to 'BB-'
30 Mar 2006 11:27 AM (EST)

Fitch Ratings-London-30 March 2006: This announcement corrects the version issued earlier. It removes all references to Recovery Ratings. In addition, the rating on Safilo's senior secured debt is upgraded from 'BB-' (BB minus) and not 'B+'.
Fitch Ratings has today upgraded Safilo S.p.A.'s Issuer Default Rating ("IDR") to 'BB-' (BB minus) from 'B'. At the same time, Fitch has upgraded Safilo Capital International S.A.'s EUR195 million 9.625% senior notes due 2013 to 'BB-' (BB minus) from 'CCC+', in line with Fitch's Recovery Ratings methodology. Fitch has also upgraded Safilo's senior secured debt to 'BB+' from 'BB-' (BB minus). The Short-term rating is affirmed at 'B'. All the ratings are removed from Rating Watch Positive, following the completion of the IPO and the publication of Safilo's FY05 results. A Stable Outlook is assigned to the IDR.
The upgrade of Safilo Capital International's senior notes reflects improved recovery prospects following the repayment of EUR178m of Safilo's senior secured bank facility and prepayment of EUR105m of the senior notes, in each case from the primary IPO proceeds.
"The upgrade of Safilo's IDR reflects the higher degree of financial flexibility following the IPO," says Kirsten O'Byrne, Associate Director in Fitch's Leveraged Finance Group. "Reduced debt service costs, together with a continued focus on fixed cost reduction, working capital discipline, and capital expenditure control are key to the company's improved ability to withstand the business cycle and demand volatility." Safilo's free cash flow immediately benefits from savings on interest, expected to be slightly offset by increased cash taxes. Fitch also anticipates a potential reduction in debt service requirements to result from Safilo's ongoing renegotiation of its senior secured bank facility. Cost savings from plant closures completed in January 2006 and anticipated production process improvements will further strengthen future cash flow.
Fitch notes the loss of the Burberry and Ralph Lauren licenses but also recognises the potential contribution of the newly-awarded Hugo Boss license to Safilo's already attractive portfolio of licensed brands as well as the company's track record in securing new licenses. Fitch believes that Safilo's focus on the high-end eyewear market and approach to brand portfolio management has sustainable appeal to licensors.
FY05 results show Safilo remains on track towards increased profitability. Group sales rose 8.5% to EUR1.025 billion, driven by strong growth in sunglasses sales and sales in the Far East and North American markets. FY05 EBITDA reached EUR163m, before extraordinary items related to the IPO, while the margin improved to 15.9% from 15.5% in 2004. Reductions in general and administrative costs were somewhat offset by increased royalties, as well as increased marketing and commercial expenses. Safilo's IPO raised net proceeds of EUR295m for the company, which it applied against debt and EUR10m prepayment premia on the senior notes. As a result of the debt repayments and the improvements in EBITDA, total net leverage has reduced to 2.9x EBITDA at YE05, compared to 5.0x at YE04.
Strong, consistent improvement in profitability and cash flow generation, or further reduction of total gross debt could support a change in Outlook towards a future upgrade. However, the size of the business, as well as the cyclical and volatile demand which characterises the fashion industry, may constrain ratings to the speculative grade. The loss of a key license without replacement, deterioration in profitability or cash flow generation, or increased leverage could place downward pressure on the ratings.

Contact: Kirsten O'Byrne, London, Tel: +44 (0) 20 7417 6297; Giulio Lombardi, Tel: 0207 7417 6314.
Media Relations: Jon Laycock, London, Tel: +44 20 7417 4327.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Last update: 20/07/2010, 10:23

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