S&P cuts Safilo facility to B, notes to CCC+

Standard & Poor's said it has lowered its long-term corporate credit rating on Italy-based eyewear manufacturer Safilo SpA to B from BB- and lowered to B from BB- its bank loan rating on the group's €650 million senior secured credit facility maturing between 2009 and 2011.

S&P also cut to CCC+ from B its subordinated debt rating on the senior notes maturing in 2013 issued by Luxembourg-based subsidiary Safilo Capital International SA and guaranteed by Safilo SpA.

All ratings were placed on CreditWatch with negative implications.

"The downgrade and CreditWatch listing reflect, respectively, Safilo's very weak operating performance in the first nine months of 2003 and a subsequent breach of a covenant in September 2003, for which a waiver has been obtained, however," said Milan-based S&P credit analyst Benedetta Rospigliosi.

Contrary to S&P's expectations, Safilo's results did not improve in the third quarter from the weak performance recorded in the first half. EBITDA was down 29% both for the nine-month period and the third quarter.

"Such performance, combined with negative cash flow generation, continues to yield very weak credit metrics and materially impair debt repayment capacity," added Rospigliosi.

Poor top-line performance led Safilo to breach its net debt-to-EBITDA covenant in the third quarter. Although a waiver has already been obtained, S&P said it now believes that Safilo will be challenged to meet its financial covenants during the last quarter of the year, thereby introducing substantial risks for the company's unsecured creditors.

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