MILAN — The financial pressures keep building on Italy’s IT Holding SpA, parent of Gianfranco Ferré, Malo, Extè and a string of licensed brands.
On Monday, Ittierre SpA, the licensing and production unit of IT Holding SpA, said it will file for bankruptcy protection after running out of cash — and the entire fashion group could follow. That could set off a scramble by potential buyers to snap up some of Italy’s leading fashion brands.
IT Holding, which manages under license via Ittierre the Just Cavalli, VJC Versace, Versace Sport, C’N’C Costume National and Galliano labels, said Monday it had decided to place Ittierre into administration to allow the group to be restructured and to continue its business operations. IT Holding’s shares were suspended indefinitely on the Milan Bourse following the announcement.
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“The board ascertained the absence of the conditions necessary to continue its operations in a regular course of business; in particular with regards to the availability of the necessary financial resources and the continuity of its license agreements,” IT Holding said.
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Moody’s Investors Service downgraded IT Holding’s probability of default rating to D from Ca and the senior secured rating on its 185 million euro, or $239.5 million, bond due 2012 to C from Ca, saying the insolvency constituted a default. (Monday’s decision triggered a clause allowing bondholders to call for immediate repayment of the 9 7/8 percent senior notes.) The agency maintained a Ca rating on IT Holding’s corporate family rating and said the outlook on the ratings was stable.
Dollar figures are converted at average exchange rates for the periods to which they refer.
Ittierre accounted for 65 percent of IT Holding’s turnover in 2008 and 77 percent of earnings before interest, taxes, depreciation and amortization, according to investment bank Mediobanca. The business is also the most profitable part of the fashion group and widely viewed as the jewel in IT Holding’s crown.
Banking sources said whatever the outcome of Monday’s decision — be it liquidation of assets or debt consolidation and restructuring — the bankruptcy procedure would leave little value for current shareholders. They also expected IT Holding to follow Ittierre into administration.
IT Holding has been struggling to service net debts, which, as of Sept. 30, totaled 295.4 million euros, or $382.4 million, including the bond, due to soft consumer spending and difficulties in obtaining further support from banks.
Last week, IT Holding said a delay in royalty payments had created tensions with licensors. In December, credit ratings agencies downgraded the company for the second time in as many months after it missed an extension on a 9.4 million euro, or $12.2 million, loan payment originally due in October. In November, the firm forecast an 8 percent drop in 2008 revenues and a lower profit margin, after a net loss of 10.1 million euros, or $15.4 million, in the first nine months of the year. (In 2007, IT Holding returned to profitability with net earnings of 4.8 million euros, or $6.6 million, on revenues of 635.9 million euros, or $871.7 million.)
The precariousness of the situation forced IT Holding to look for third-party investment last year, and last Tuesday the company said it was exploring the feasibility of a proposal — believed to have come from Londonbased private equity firm Kingsbridge Capital Ltd. — which envisaged a capital increase and a repurchase of the bond.
Sources said talks with Kingsbridge were still open, but they had not yielded a solution satisfactory to all parties, including creditors and licensors, in time to prevent Monday’s decision. Italian media speculated restructuring and finance specialist Kingsbridge, which is part of Austrian investment company Hardt Group, was negotiating a 100 million euro, or $129.5 million, investment. Kingsbridge has not returned calls seeking comment.
IT Holding also held talks with Chinese businessman Billy Ngok’s Mensun Ltd. In December, IT Holding said it had reached a nonbinding agreement with Mensun regarding a possible disposal of assets, thought to include Ittierre. In September, IT Holding said negotiations involved the sale of a minority stake in PA Investments SA, its parent company, and possible commercial and production agreements in Asia. Ngok has not returned calls seeking comment. Prior to being suspended from the Bourse, IT Holding had a market capitalization of 43.3 million euros, or $56.1 million.
The uncertainty over IT Holding’s future also sparked unease among licensors. Sources said Versace looked into buying back the VJC Versace and Versace Sport licenses on concerns over what might happen to Ittierre, should IT Holding open its capital to private equity, although it was unable to strike a deal. A spokeswoman for Versace declined to comment “out of respect for the long-standing and mutually satisfactory collaboration” with Ittierre “during this delicate moment.”
Meanwhile, Renzo Rosso’s production and licensing unit Staff International SpA has again been linked with the Just Cavalli contract, which contributed more than a third of IT Holding’s revenues in 2007 and expires next year. His spokeswoman declined to comment last week.
IT Holding’s board will meet again “soon” to examine what actions need to be taken — “should the ministry-appointed administrator not have extended the extraordinary administration to IT Holding in the meantime” — and to review an updated financial situation, the company said Monday.
IT Holding chairman Tonino Perna controls 60.6 percent of IT Holding via PA Investments, and a further 1 percent through GTP Holding SpA, a separate holding vehicle for PA. PA has debts of around 140 million euros, or $181.2 million.