Levi Strauss trades higher by about half a point on exploration of Dockers sale

By Sara Rosenberg

New York, May 11 - Levi Strauss & Co.'s term loan B was up about half a point and traded pretty actively on news of a possible sale of the Dockers asset. Although an asset sale usually brings bank debt levels back to where the paper is callable, in this case, levels headed higher with some speculating that the movement could have something to do with the need for lender approval to complete the sale.

The term loan B was quoted at 105½ bid, 106½ offered, according to a trader, up from 105 bid, 106 offered. In the morning, one fund manager saw the paper quoted at 105¼ bid, 106¼ offered.

"The paper is never callable at a premium. But it's non-call for 21/2-years to start. If they do need lender consent to sell Dockers that could be why the paper is up. Lenders can basically say to the company that to give you consent we'll demand a premium from you," the trader explained.

On Tuesday, Levi Strauss announced that it is exploring the sale of its worldwide Dockers casual clothing business that generates annual worldwide revenue of about $1.4 billion, including more than $360 million in licensee wholesale revenue.

In the news release, the San Francisco branded apparel company did say it "will seek amendments to its current lending agreements to facilitate the proposed sale."

Citigroup Inc. has been retained to assist with the potential sale.

"We are choosing to sell the Dockers brand because we want to reduce our debt substantially, improve the capital structure of the company, and focus our resources on growing our Levi's and Levi Strauss Signature businesses," said Phil Marineau, chief executive officer, in a company news release.

"We have made good progress in improving our competitiveness and financial strength, including taking cost and complexity out of our business, revamping our Levi's brand products and marketing, and expanding our Levi Strauss Signature brand for value-conscious consumers. Selling the Dockers business would be a significant next step toward achieving our long-term financial performance goals for the company."

As of May 9, Levi Strauss had available liquidity resources of about $490 million and total debt, less cash, of about $2.02 billion.

"We have sufficient liquidity and expect to remain in covenant compliance throughout the year whether we sell the Dockers business or not," said Jim Fogarty, chief financial officer, in the release. "This proposed transaction is a strategic choice that we've made as one of a number of actions we've been taking to reduce our debt, improve our financial strength, focus our resources and investment, and make us more competitive. We believe the sale of the Dockers business, coupled with our previously announced initiatives to deliver more competitive operating and SG&A margins in 2005, would transform Levi Strauss & Co."

In reaction to the Dockers news, Standard & Poor's said that Levi's ratings and outlook would not immediately be affected by the announcement since the rating agency still needs to monitor the situation and if possible obtain more definitive information on the possible sale to be able to assess the impact on the company's ratings.

"While such a sale would be a positive in that it would help reduce a portion of Levi's heavy debt burden, it would also reduce Levi's revenues and earnings stream as well as reduce the company's business diversification," S&P added in its release.

Juno reworked

Juno Lighting Inc. restructured its credit facility resulting in a new total size of $245 million, up from $240 million, increasing the size of the first lien term loan while decreasing the size of the second lien term loan, and lowering pricing on the both the first and the second lien term loans.

More specifically the first lien term loan (B1/B+) was increased to $165 million from $150 million and pricing was lowered to Libor plus 275 basis points from Libor plus 300 basis points, with a stepdown to Libor plus 250 basis points added if leverage falls below 4x, according to a fund manager.

The second lien term loan (B2/B-) was decreased to $50 million from $60 million and pricing was reverse flexed to Libor plus 550 basis points from Libor plus 575 basis points, the fund manager added. The tranche has call protection of 102 in year one and 101 in year two.

The $30 million revolver (B1/B+) was unchanged at Libor plus 300 basis points with stepdowns depending on leverage.

The deal has been oversubscribed since about a week after the mid-April bank meeting.

When the deal launched it got good reviews as some were impressed by the business' solid appearance as well as by a new product that is expected be released soon that could earn the company quite a bit of money and by the potential of leverage reduction.

Leverage is 3.2 times through the first lien and 4.5 times through the second lien. Interest coverage is just over four times. Furthermore, the company generates $25 to $30 million of free cash flow per year that could be used for debt reduction.

Proceeds would be used to retire $160 million of long-term debt and pay a $50 to $60 million dividend to its preferred and common stockholders.

Wachovia is the lead bank on the deal.

Juno is a Des Plaines, Ill., lighting fixtures manufacturer.

Revlon commitments weak

Revlon Consumer Products Corp.'s $530 million six-year term loan B was "still kind of weak" in terms of commitments received from investors on Tuesday, as the market seemed uninspired by the previous day's changes to the deal of increased pricing on the tranche by 100 basis points and added soft call protection, according to a fund manager.

When asked why investors are showing skepticism toward the deal, the fund manager responded, "Historically weak financial performance, high leverage, highly competitive industry, larger competitors with deeper pockets, no real competitive advantage, yada, yada, yada."

The term loan B, which is being offered at par, was flexed up to Libor plus 425 basis points from Libor plus 325 basis points, and 101 soft call protection was added as a result of price talk on the company's $400 million offering of seven-year senior unsecured notes coming in at 10.25% to 10.50%, the fund manger explained.

"Bond price talk was higher so pricing for the term loan had to move higher as well," the fund manager added.

Revlon's bond offering is expected to price Wednesday via Citigroup as bookrunner.

The company's $680 million credit facility (B) also contains a $150 million five-year revolver priced with an interest rate of Libor plus 325 basis points with an undrawn fee of 50 basis points.

JPMorgan and Citigroup are the lead banks on the loan with JPMorgan listed on the left.

Proceeds from the credit facility, combined with proceeds from the senior unsecured bond offering, will be used to refinance the company's existing credit facility of about $312 million and fund tender offers to purchase about $555 million of its notes, consisting of any and all of the $363 million principal amount outstanding of its 12% senior secured notes due 2005, any and all of the $116.2 million principal amount outstanding of its 8 1/8% senior notes due 2006, and any and all of the $75.5 million principal amount outstanding of its 9% senior notes due 2006.

Successful completion of the credit facility and the bond offering are both conditions of the tender offers.

Revlon anticipates closing on the credit facility in mid May being that the tender offers and consent solicitation, in the case of the 12% senior secured notes, expire on May 14.

Revlon Consumer Products is a wholly owned subsidiary of New York City-based Revlon Inc., a manufacturer and seller of cosmetics and skin care, fragrances and personal care products.

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