On Oct. 29, Safilo's shareholders approved a €150 million rights issue, marking the latest act of a remarkable twist of fate for the troubled group, judging from several positive aspects of the refinancing package. Is the group on the cusp of a revival or just facing another false dawn?

The terms of the capital increase still have to be decided. But the transaction, which could be completed by the end of the year, is certain to be successful as Hal Holding has already pledged to take up all unsubscribed rights through its subsidiary Multibrands Italy, which is Safilo's largest shareholder with a 41.6 percent stake. The rights issue is the second part of a €300 million refinancing package for the group's debt.

An additional €150 million financing agreement expiring on June 30, 2023 was granted by a pool of banks. The facility includes a term loan of €75 million and a €75 million revolving credit facility (RCF). The pool includes Banca IMI, BNP Paribas, UniCredit as arrangers and Intesa Sanpaolo and UniCredit as lenders. The facility can be partially syndicated and raised to a maximum of €200 million if additional lenders join the pool. The monies will enable the group to repay a €150 million high-yield bond due May 22, 2019.

Safilo also obtained from its creditor banks an extension of the existing €150 million RCF from Nov. 30 to Jan. 31, 2019 and the waiver of covenant tests. Safilo had breached the covenants of the existing RCF and the banks had previously seemed reluctant to prolong the facility once more. They had already stretched it from its previous expiration date of last July 29.

The interest rates of the new financing agreement were not disclosed but are believed to be convenient. The company's chief financial officer, Gerd Graehsler, indicated that the terms of the package are “slightly higher, but not materially” than the ones of the existing RCF. Furthermore, the cost of the financing will be pegged to the group's leverage, so interest rates will fall if debt declines.

Safilo last distributed a dividend in 2008 and is unlikely to pay one in the near future, so the cost of equity is nil. On average, the overall recapitalization package, combining the rights issue and the new financing agreement, carries an estimated annual average cost of a low to mid-single digit percent. It's a rather astonishing achievement considering that on July 17, prior to the announcement of a possible recapitalization, Moody's had downgraded the group's rating to B2 from B1 with a negative outlook, indicating the risk of a further downgrade. The agency had warned that without a restructuring program for its debt, Safilo faced the risk of running out of cash by May 2019.

The icing on the cake is that Safilo is likely to pay very little for underwriting the rights issue. Multibrands pledged to subscribe its share of the capital injection and to take up any unexercised rights. It will be paid a 2 percent commission for any shares bought beyond its own stake, resulting in a maximum outlay of €1.8 million for Safilo. The higher the level of subscriptions by minority shareholders, the lower the cost.

The new capital increase shows that Safilo can rely on the support of Hal, which had already injected about €180 million of equity in the group between 2010 and 2012, according to Moody's, and will spend at least €62 million on the announced capital increase.

Safilo is expected to remain a separate entity within the Hal group, which is likely to continue to shun further integration with its own retail eyewear business. In the first half of 2018, Safilo achieved sales of €34.2 million with Hal, primarily with the GrandVision group, representing 6.5 percent of its €492.2 million turnover in the six-month period. A year earlier, Safilo posted sales of €33.5 million with the Hal group, equal to 6.1 percent of total sales.