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Prada in Talks To Renegotiate $787M in Debt

Prada is renegotiating the terms of its $787 million convertible bond issue with banks, according to financial sources.

MILAN — Still basking in the glories of Jil Sander’s triumphant return to the label she founded, Prada is turning its attention to matters decidedly less glamorous but just as critical to the house’s future: its debt.

Prada is renegotiating the terms of its $787 million convertible bond issue with banks, according to financial sources familiar with the negotiations. The fashion house must come to grips with paying back those bonds in 2005 if it fails to execute its long-awaited initial public offering.

Dollar figures are converted from the euro at current exchange as Prada’s bond is for 700 million euros.

“We are sitting comfortably around a table to talk and trying to find a common vision,” said one financial source. “[Prada] wants to talk with the banks to better restructure, given that 2001 and 2002 weren’t the best for the luxury goods industry.”

Prada declined to comment. At the end of 2002, Prada Holding NV had net debt of $865.7 million, or 770 million euros, but when combined with the outstanding bonds, the total swells to $1.65 billion, or 1.47 billion euros. Prada amassed those debts during a buying spree that brought Church’s, Helmut Lang and Jil Sander under its corporate umbrella.

Deutsche Bank issued the bonds in December 2001. They are convertible into Prada shares if and when the fashion house lists on the stock market.

Failing that, Prada has to repay the bonds in cash. About a year ago, Prada pulled the plug on its IPO at the last minute, citing weak market conditions in the wake of massive accounting scandals at WorldCom and other firms.

One source characterized the talks with banks as “friendly discussions” and downplayed speculation in the market that Prada is coming under pressure to quickly deal with its debt.

Prada has in fact worked to chip at its debt by selling off 45 percent of Church’s to a group of private investors as well as some real estate assets. It has repeatedly denied rumors that it is planning to sell off labels Jil Sander and Helmut Lang.

Prada is not the only fashion company seeking fresh methods of financing. IT Holding has plans for a five-year securitization of its commercial credit with Credit Lyonnais, according to the fashion company’s financial director Vittorio Notarpietro.

IT Holding will periodically convert its trade receivables to a special purpose vehicle controlled by the French bank. Credit Lyonnais will then issue commercial paper securities that are backed by the trade receivables.

Notarpietro estimated that this arrangement should generate average annual financing of about $112.4 million, or 100 million euros, to $134.9 million, or 120 million euros, for the group.

“This operation complements our more standard short-term lending with the banks,” he said.