April 2 (Bloomberg) -- Prada SpA’s owners may ask banks to reorganize 1.2 billion euros ($1.6 billion) of debt, freeing cash to open new stores and promote the luxury label’s brands in the recession, two people with knowledge of the plans said.

Sales at stores open at least a year fell in 2008, reducing Prada’s cash on hand, while earnings declined as fixed costs rose, the people said. The Milan-based company may ask for some debt payment deadlines to be extended, they said, asking not to be identified because the plans are confidential.

Prada, which has fewer outlets worldwide than Gucci and Louis Vuitton, may also raise its total debt level to take advantage of opportunities to expand, the people said. Prada attempted to raise funds through an initial public offering last year, which was postponed after markets slumped. The debt reorganization would be led by Prada’s main lenders, Intesa Sanpaolo SpA and Unicredit SpA, the people said.

“For the luxury brands that have the financial means to expand, the recession is a good opportunity, since asset prices are so low,” said Paolo Leschiutta, a Milan-based analyst at Moody’s Investors Service.

Prada’s total sales were little changed in 2008, helped by contributions from new stores, the people said, though profit before interest, taxes, depreciation and amortization declined. The company hasn’t reported figures for the fiscal year, which ended on Jan. 31.

The people said the debt is about evenly split between Prada Holding BV and Prada SpA, the operating company. Prada Holding has about 100 million euros of debt coming due this summer and may seek changes at that time, they said. A spokesman for Prada declined to comment.

Interest Margins

Prada, which is controlled by Chief Executive Officer Patrizio Bertelli, his wife Miuccia Prada and her family, has opened about 20 shops in the past year, including outlets in London, San Francisco and Kuala Lumpur.

Banks may benefit when companies pay higher interest margins to reorganize their debt. Officials at Unicredit declined to comment. A spokesman for Intesa, which holds a 5 percent equity stake in Prada SpA, said the bank doesn’t comment on its clients’ transactions.

Luxury labels are taking different approaches to expansion as a five-year industry boom crumbles, depending on their access to cash. Kelly bag maker Hermes International SCA vows to open or refurbish 20 stores in 2009, while jeweler Bulgari SpA has put new stores on hold and will close some outlets. Sanford C. Bernstein analyst Luca Solca forecasts the industry’s sales will fall as much as 15 percent this year.

“Unlike in previous recessions, luxury brands are contracting, though the biggest names are suffering less,” Moody’s Leschiutta said.

Koolhaas Space

Prada’s other labels include Miu Miu fashions and Church’s shoes. To raise the brand’s profile, Prada is building an exhibition space in Seoul, designed by architect Rem Koolhaas, that can be flipped by cranes to change shape for new events.

The company had 210 stores as of the end of 2007, the most recent period for which figures have been released. That trails Gucci’s 258 outlets and Vuitton’s 430.

Prada Holding has about 300 million euros of loans maturing next year, the people said. Prada SpA’s debt, meanwhile, has increased from its reported 507 million-euro level at the end of 2007, the people said.

Executive Vice Chairman Carlo Mazzi said March 23 that Prada SpA isn’t breaching debt covenants and is unconcerned about its borrowing levels. Prada SpA doesn’t have any payments due until the end of 2010, he said.

Prada, which was founded by head designer Miuccia Prada’s grandfather Mario Prada in 1913, still operates its first outlet in Milan’s 19th century Galleria shopping arcade.

Last year’s planned IPO, the fourth Prada has proposed over a decade, could have given Intesa an opportunity to sell some or all of its equity stake in Prada SpA at a profit. The lender invested 100 million euros for the stake in 2006. Bertelli and the Prada family own the remaining 95 percent of Prada SpA, and hold all of Prada Holding along with a consultant.

To contact the reporters on this story: Sara Gay Forden in Milan at sforden@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net.

Last Updated: April 1, 2009 19:01 EDT