The U.S. rating agency Standard & Poor's confirmed its “B+” credit rating for Safilo, with a stable outlook. S&P subsequently withdrew the rating at Safilo's request. Safilo explained that the decision was motivated by cost containment and streamlining and that it will continue to be assessed by S&P's peer, Moody's. Moody's has a ‘Ba3' rating for Safilo, also with a stable outlook.
Both ratings are non-investment grades, also known as “junk bonds.” But Moody's assessment is a notch above S&P's evaluation, putting Safilo's credit profile in the “speculative” category rather than “highly speculative” one as is the case for S&P's rating. Moody's upgraded Safilo's rating slightly two years ago.
Unfortunately, S&P did not release much information regarding its decision not to upgrade Safilo but did indicate some concern that credit ratios could deteriorate over the coming years. In a statement, S&P noted that “at the time of withdrawal, Safilo's business risk profile reflected the negative track record in the renewal of some key license agreements, as well as the transition phase the company is facing with the early termination of Gucci's license. In addition, weakness in Safilo's recent operating performance demonstrates some ongoing delays and execution risks in the implementation of its business strategy to consolidate the position of its own brands (namely Carrera, Polaroid, and Smith).”
As a positive element, S&P pointed out that Safilo's revenue base is quite diversified in terms of geographical regions and product categories. It also noted that the company will benefit from cash payments of €30 million from Kering in 2018, representing the last tranche of a €90 million compensation package for the early termination of the Gucci license.
“This will provide the company with external resources in order to implement its strategy,” said S&P. “At end-2016, the credit ratios were solid…. However, if the weak trend in operating performance continues, this would deteriorate over the next two years,” the agency said.