Jul 18, 2018
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Moody's cuts Italy's Safilo rating on refinancing risks

Jul 18, 2018

Debt rating agency Moody’s cut its ratings on Italy’s Safilo on Tuesday, saying there were risks that the eyewear group could fail to refinance its debt.

Rag & Bone eyewear - Safilo

Moody’s cut Safilo’s corporate family rating to ‘B2’ from ‘B1’ and changed the outlook to negative from stable. The move follows a one-notch downgrade in April.

Safilo, the world’s second largest eyewear maker, saw its core profit halve in 2017 following the loss of a 350 million euro ($408 million) licence for Gucci-branded spectacles and IT problems that hurt deliveries.

After appointing a new chief executive in March, Safilo last month agreed with banks on extending until Nov. 30 a 150 million euro ($175 million) revolving credit facility that was initially due to expire on July 29.

Moody’s sees a further extension of the facility as unlikely and said there was the risk of a liquidity shortage when it matured if Safilo had failed to refinance existing debt.

Moody’s said a weakening corporate performance and rising political risks in Italy could make it difficult for Safilo to access markets though its debt remained small and top shareholder HAL Holding may provide support.

The agency said virtually all of Safilo’s debt matured in the next 11 months. Moody’s added that the rating assumed the company would manage to refinance it.

“Today’s rating actions factors in Safilo’s difficulties to address its refinancing need in a timely manner at a time when operating performances are under pressure,” Moody’s senior analyst Vincent Gusdorf said.

Safilo was hurt by a decision by French luxury goods group Kering to bring its eyewear business in-house, turning a licensing accord for its top Gucci brand into a temporary production accord.

In a further blow, Dior-owner LVMH struck a deal this year for an eyewear joint venture with Italy’s Marcolin, ending an accord with Safilo for its Celine brand. Safilo is seen at risk of losing other LVMH brands after 2020.

“The negative outlook reflects the uncertainties stemming from Safilo’s refinancing need because short-debt maturities exceed its current liquidity,” Moody’s said.

“The negative outlook also factors in that Safilo may struggle to increase its earnings on a sustainable basis if LVMH’s licenses are not renewed,” it added.

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