THE global fashion house Valentino has become the latest investment by Permira, the private-equity firm, to be forced into debt negotiations with its banks.

Permira, whose investments include New Look, the retail chain, and bingo hall operator Gala Coral, has begun discussions with a consortium of banks, including Citigroup and Italy’s Unicredit, about the sustainability of Valentino’s €2.5 billion (£2.1 billion) debt.

Although the Italian group, which owns a majority stake in the fashion brand Hugo Boss, proved resilient in 2008, it is understood its banks expect performance to decline in 2009 as the recession takes its toll. Stefano Sassi, Valentino’s chief executive, said this year that he had been forced to scale back expansion plans to preserve cash to service its huge debt.

As a result, Permira is expected to present a revised strategy to the banks and request a relaxation of the debt terms to counter the anticipated fall in revenue at Valentino, which it bought in 2007 at the peak of the buyout boom. Valentino Garavani, the founder, resigned several months after Permira took over.

On its own website, Permira values Valentino at €5.3 billion but its true value is likely to be much less today. In March, SVG, Permira’s largest investor, wrote down the value of its stake in Valentino by 54%.

Once regarded as one of Europe’s best-performing private-equity firms, Permira has seen its fortunes decline as a number of its companies have run into difficulties.

The group wrote down the value of its portfolio by 36% this year. It has also slashed the value of some of its investments to zero, including Gala Coral, one of the biggest private-equity owned groups in Britain with about 20,000 employees and once valued at about £5 billion.

Other investments Permira regards as worthless are: Borsodchem, a Hungarian chemicals group; Ferretti, the Italian yacht-maker; and Cortefiel, the Spanish clothes retailer. German pay-TV broadcaster ProSiebenSat.1 may also require restructuring.

However, there are still some firms Permira says are performing well including high-street retail chain New Look. Frozen-food manufacturer Birds Eye Iglo and Acromas, the merged AA/Saga business, are among the biggest UK firms preparing to float on the stock market.

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