MILAN — As if slumping share prices weren’t enough, credit ratings agencies downgraded Safilo Group SpA and IT Holding SpA on concerns the weakening market conditions could further undermine the Italian companies’ ability to service debt and make interest payments.
Moody’s Investors Service revised down Safilo’s corporate family rating, or CFR, to B1 from Ba3 and the senior unsecured rating on the eyewear firm’s 195 million euro, or $246.1 million at current exchange, bond due in 2013 to B3 from B2. The outlook for the rating is negative, Moody’s said Tuesday.
“The rating action reflects Moody’s expectation that the luxury eyewear market is likely to endure a period of soft demand that might result in Safilo’s credit metrics remaining below levels previously anticipated for longer than expected,” Paolo Leschiutta, Moody’s vice president and lead analyst for Safilo, wrote in a note.
“At the same time, Safilo’s liquidity profile remains vulnerable and cash flow generation during the year is expected to remain modest given market conditions and the company’s acquisition and dividend payments earlier in the year,” he added.
Meanwhile, Standard & Poor’s adjusted IT Holding’s rating to SD from B minus and the rating of the company’s senior 185 million euro, or $233.4 million, bond due in 2012 to C from CCC plus.
“[We have] lowered the corporate rating…as the due date of [IT Holding’s] bank loan payment has passed and the payment was missed,” Standard & Poor’s credit analyst Diego Festa wrote in a note Monday.
IT Holding, which owns the Gian-franco Ferré, Malo and Extè brands and operates under license the Just Cavalli, Costume National C’N’C and Galliano labels, failed to pay a 9.4 million euro, or $11.9 million, principal installment on its unrated bank loan due Oct. 20. The fashion company said on Monday that Italy’s second biggest bank, Intesa Sanpaolo SpA, had approved its request to postpone the tranche repayment until Dec. 22.
Moody’s also revised down IT Holding’s CFR and probability of default rating to Caa1 from B3 and the senior secured rating on the notes to Caa2 from B3. It also placed the ratings under review for possible further downgrades.
“[The] rating action reflects ongoing pressure on consumer spending, due to the generally weak economic environment and high uncertainty on consumer confidence, the negative impact on IT Holding operating performances so far during the year, and the expectation that the company’s key credit metrics might remain in line with a Caa rating at best for the next 12 months,” wrote Leschiutta, who is also Moody’s lead analyst for IT Holding.
“Moody’s also notes the deteriorating liquidity profile of the company as it continues to rely on receiving bank support at a time when the current conditions in the financial markets remain unsettle[d] and further extension of ongoing support might be more challenging for the company,” he added.
Both companies fell to new lows on the Milan Bourse on Tuesday. Safilo dropped 7.7 percent to 0.51 euros, or 64 cents, and IT Holding closed down 1.2 percent to 0.20 euros, or 25 cents. Each has lost more than three quarters of its value in the last 12 months after a string of poor results and recent profit warnings.
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