Fitch rates Safilo Capital notes CCC+

Fitch Ratings said it assigned a CCC+ rating to Safilo Capital International SA's €300 million 9.65% senior notes due 2013 and assigned parent company Safilo SpA a senior unsecured rating of B and a senior secured rating of B+.

The outlook is negative.

Fitch said the three-notch differential between the notes and the senior secured facilities reflects the agency's view of the significant difference in the potential recovery prospects between the two classes of debt in the event of any future forced restructuring or distressed sale scenario.

The differential reflects the structural subordination of the notes and the potential difficulty in realizing the value attached to the licensing agreements in a distress scenario, as well as the fact that certain features of the legal structure remain untested in Italian courts.

"In difficult market conditions, the company has surprised investors with the level of underperformance recorded since the bond was syndicated last May, but the ratings factor in a certain level of recovery in 2004 and liquidity does not appear to be an immediate issue" said Fitch analyst Stefano Podesta. "However, the outlook is negative given the poor visibility that the company seems to have on its financial performance, limited details on recently announced cost cutting initiatives and increased pressure on cash flow from senior loan mandatory amortisation from 2004 onwards."

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