Levi Strauss better on earnings; GM mixed in active dealings after numbers; Idearc finds a bottom

By Paul Deckelman and Paul A. Harris

New York, Feb. 12 - Levi Strauss & Co.'s bonds rose on Tuesday after the San Francisco-based apparel company reported improved fourth-quarter results.

Also moving around on quarterly numbers was General Motors Corp., whose bonds were actively traded but which really didn't go very far, price-wise; traders called the credit mixed.

Idearc Inc., whose bonds have been falling over the past week on that company's less-than-inspiring quarterly performance, seems to have bottomed for now, with different sources calling its bonds unchanged to a bit lower in a low-70s context - well down from considerably higher levels at which it began this month.

Quiksilver Inc.'s bonds were better - even as the company announced that its president will step down, possibly to make an attempt to acquire one of the company's divisions.

One high yield syndicate official marked the broad market unchanged on Tuesday, but added that junk failed to get a tailwind from the 1.09% rally seen in the Dow Jones Industrial Average.

However another official, from a different syndicate, asserted that junk spreads hit six-year wides during the Tuesday session.

Primary market activity meantime remained muted.

Market gauges seen mostly easier

A market source indicated that the widely-followed CDX index of junk market performance remained around the same 87½ bid, 88 offered level to which it had fallen on Monday. Meanwhile, the KDP High Yield Daily Index declined another 0.15 to 74.11 and its yield widened by 3 basis points to 9.629%.

In the broader market, declining issues remained ahead of advancers, by around a five-to-four margin. Overall activity, reflected in dollar volumes, rose by nearly 11% from Monday's levels.

A trader said that for the most part, the junk market on Tuesday "held in there because of the stock market," which was up for most of the day in response to billionaire investor Warren Buffett's offer to assume $800 billion of municipal bond liabilities from troubled monoline insurers MBIA Inc., Ambac Financial Group Inc. and FGIC Corp., as well as news of an expanded program to help homeowners avoid foreclosure. However, he said, "generally, things want to go down, if you ask me."

Levi's bonds gain on numbers

One name which was not going down on Tuesday was Levi Strauss, whose bonds rose about a point or two across the board after the venerable blue jeans manufacturer reported better fourth-quarter and full-year earnings.

A trader said the company's 8 7/8% notes due 2016, after having opened the session around 90.5 bid, 91.5 offered, were going home at 92 bid, 93 offered, helped by the better numbers.

Those bonds, he said, had traded as high as 94.75 bid, 95.75 offered earlier in the month, "about a week ago," but had declined since then in line with the overall market downturn.

A market source saw the bonds get as good as the 95.5 level before going out around 93, up 2 points.

At another desk, a trader saw the company's 9¾% notes due 2015 up a point on the day at 95 bid, 97 offered.

Levi announced that pre-tax income rose by 9% to $376 million for fiscal 2007, versus $345 million in fiscal 2006.

Net income increased in the fourth quarter by 179%, or $171 million, to $267 million versus the same period last year. For the full fiscal year, net income grew to $460 million, a 93% gain over the prior year.

The company said that increases in both the quarter and the full year were primarily driven by an approximately $215 million non-recurring, non-cash reversal of deferred tax asset valuation allowances in the fourth quarter. The reversal was the result of improvements in business performance and revised income tax expectations as part of the ongoing review of open tax years with the IRS.

Net revenues for the fourth quarter improved by 2% to $1.3 billion compared to the same period last year, and increased 4% to $4.4 billion for fiscal 2007, versus the previous year on a reported basis. Excluding currency effects, net revenues decreased by 2% in the fourth quarter from the same period in 2006, reflecting declining sales in North America. For the whole fiscal year, net revenues increased 1%, excluding currency effects, compared to 2006. The company said the revenue gains were driven by sales growth in Asia-Pacific emerging markets, Europe and the U.S. Levi's brand.

The fourth quarter was the company's ninth straight profitable quarter, and topped off its best year in a decade.

Quiksilver gains as president leaves, possible asset sale eyed

Also in the textile and apparel sector, Huntington Beach, Calif.-based athletic wear maker Quiksilver's 6 7/8% notes due 2015 were seen up a point at 79 bid.

The company announced on Tuesday that its president, Bernard Mariette, had resigned that post and given up his seat on the board of directors, in order to "pursue other interests" - which reportedly could include an attempt to acquire the company's currently underperforming Rossignol ski equipment and winter athletic clothing business.

The prospect that the management change might lead to Quiksilver unloading Rossignol - which makes skis, snowboards, ski boots, hats and gloves - pushed the company's New York Stock Exchange-traded shares up 53 cents, or 5.78%, to $9.70, on volume of 5 million, more than double the norm.

That business has been a drag on what has otherwise been strong performance by the company's other operating segments - so much so that Quiksilver warned last month that it would have to post a larger-than-expected loss in the fiscal first quarter, chiefly due to weak retailer reorders of winter sports gear and clothing.

Quiksilver at that time hired J.P. Morgan Chase to explore ways that the company could cut its exposure to the winter sports equipment market, possibly including the sale of product lines or even the whole division.

Company chairman and chief executive officer Robert McKnight, who formerly served as president before Mariette, once again assumed the presidential duties, along with his other jobs, effective immediately, and said that he will look to implement strategic initiatives for Rossignol, while focusing on the company's eponymous Quiksilver, Roxy and DC core apparel and footwear brands.

GM drives all around but doesn't go far

Elsewhere, GM's bonds were seen all over the lot, although they ended not much changed, for the most part, even as the giant carmaker reported its largest-ever annual loss, but beat Wall Street's expectations.

A trader saw GM's benchmark 8 3/8% bonds due 2033 finish the day unchanged around 80 bid, 81 offered, in very active size trading.

A market source saw those bonds gyrate in a 5 point arc between 78.5 and 83.5 before finally coming to rest around the 80 bid level, which the source called down ½ point on the day. Meantime, GM's 7.20% notes due 2011 finished up ½ point at the 92 level.

Another market source saw GM's 7 1/8% notes due 2013 end down ½ point around the 85 level. Its 49% owned GMAC LLC automotive financing unit's 7¾% notes due 2010 lost 2 points to the 94 level.

GM's NYSE-traded shares were higher for most of the day, investors apparently unfazed by the carmaker's sizable losses, but they turned downward late in the session to end slightly lower.

GM said that it lost $38.7 billion last year, far exceeding its previous record deficit of $23.4 billion, set in 1992, a loss largely attributable to a change in health care accounting. Last year's loss was largely driven by a third-quarter charge related to unused tax credits.

Excluding that charge and other special items, GM lost $23 million, or 4 cents per share, for the year. While that was a sharp deterioration from its net income of $2.2 billion in 2006, the adjusted loss was far smaller than the approximately 95 cents per share of red ink which Wall Street had been expecting.

For the fourth quarter, the company lost $722 million, or $1.28 per share, versus year-ago net income of $950 million. Most of the fourth-quarter loss was attributable to a $622 million charge related to GM's efforts to assist its bankrupt former parts subsidiary, Delphi Corp, currently restructuring under Chapter 11.

GM lost $1.1 billion on GMAC, which was hurt both by the slide in new-car sales and financings as well as by its exposure to the subprime mortgage meltdown through its ownership of a major subprime lender, Residential Capital LLC.

That was only partly offset by GM's core automotive business, which racked up record global revenues of $178 billion in 2007, up $7 billion from a year ago thanks to growth in emerging markets and favorable exchange rates. While GM's three overseas divisions - Europe, Asia-Pacific and its Latin America, Middle East and Africa division covering the rest of the world - were uniformly profitable, the giant carmaker continued to hemorrhage money at an alarming clip from its North American operations. These lost $1.1 billion in the fourth quarter - far wider than its year-earlier $129 million deficit - contributing to the overall $1.5 billion loss for the year, not much improved from a $1.6 billion loss in 2006.

In an effort to turn things around in its money-losing domestic operations, GM said that it will offer a new round of buyouts to all 74,000 of its U.S. hourly workers who are represented by the United Auto Workers union.

Analyst Shelly Lombard of the Gimme Credit investment advisory service said in a research note Tuesday that GM's latest numbers "underscore just how important the North American auto market is for GM and give us a glimpse of just how ugly things could be this year."

Lombard noted that GM's total EBITDA dropped by half to around $1 billion, not covering interest expense and planned capital spending. "This will be a rough year for GM and we expect the credit to underperform near-term, especially with negative overhang from GMAC and Rescap."

However, Lombard "expect[s] employee buyouts to allow GM to take advantage of the recently-negotiated Tier II wage," which will allow the carmaker to pay new hires considerably less than current employees, many of whom are expected to take the buyout money and leave, "and [this] sets the stage for EBITDA gains when auto sales recover."

Gimme Credit further said that the new UAW labor agreement "will go a long way toward closing the gap between GM's EBITDA and what it needs to support its capital structure. Revenue growth from emerging economies will also help close the gap." Its underlying view of GM is stable.

Idearc finds a level

A trader said that Idearc's 8% notes due 2016 are "kind of stuck in this 72-73 range, and they're still there." He said that the bonds "headed up to around 73 late in the day," adding that they "have kind of been hovering around [7]3 for a couple of days, I think." He said that the bonds had traded around 73 bid, 74 offered late Monday, "then they went down to 72-73, now it's traded up to [7]3 late."

A market source saw the bonds finish at 73.5 bid, up ½ point, although another source, while seeing that same level, called it a 2 point drop from prior levels.

Idearc's bonds have slid badly from the levels above 90 which they held at the beginning of the month, on investor fears that the economic slowdown will hurt such advertising-dependent businesses as Idearc. Those concerns were validated in the lackluster quarterly earnings which the Dallas-based telephone directory publisher released last week, causing its bonds to sell off even more, until they came to rest in their current low-70s context.

Bonds of Cary, N.C. competitor R.H. Donnelley Corp. have slid in tandem with Idearc's; the trader said that Donnelley's 8 7/8% notes due 2016 were at 72 bid, 73 offered, "down a little but not much" from where he saw the bonds go home Monday, around 72.75 bid, 73.5 offered.

Axcan sets talk

In the primary market Axcan Pharma Inc. set price talk on its upsized, restructured $460 million two-part offering of high yield notes on Tuesday.

Talk on a $225 million tranche of seven-year senior secured notes is 9% to 9¼%. The senior secured notes are pari passu with Axcan's new term loan A.

Meanwhile a $235 million tranche of eight-year senior unsecured notes (B3/B-) are talked to price 325 to 350 basis points behind the senior secured notes.

Pricing is expected on Wednesday.

Prior to restructuring the deal, the Mont-Saint-Hilaire, Quebec-based specialty pharmaceutical company had been in the market with a single $240 million tranche of eight-year senior unsecured notes.

The upsized $460 million combined notes offer is part of Axcan's $750 million of LBO debt financing.

Concurrent with the upsizing of the bond portion the company eliminated its proposed $385 million institutional term loan B, replacing it with the senior secured notes and a new $165 million term loan A.

The bank facility also includes a $125 million revolver.

Banc of America Securities LLC is the left lead bookrunner for the Rule 144A with registration rights notes offer. HSBC and RBC Capital Markets are joint bookrunners.

Credit ratings on the senior secured notes remain to be determined.

Not where but if

A high yield syndicate official, not in the Axcan deal, told Prospect News on Tuesday that it does not really matter to the market where the Axcan notes price, so long as they do price.

"It's very important that this deal gets done, especially since it's away from the energy sector," the source added, noting that thus far in 2008 all completed new issues not associated with the LBO risk overhang have emanated from the energy/resources sector.

This source added that it was interesting to note that with respect to the massive restructuring announced on Monday, the Axcan LBO financing had "sufficient flex" to transform the term loan B into a term loan A and a tranche of senior secured notes.

"It's not the kind of flex you would normally see," the official said.

"There is typically some leeway in terms of allocating the term loan B and the senior notes: if the high yield market is easier to sell you upsize the notes.

"However I don't recall a situation in the past year where a term loan B was eliminated and a term loan A and senior secured notes were created in its place."

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