Moody's cuts Levi Strauss term loan to Caa2; outlook negative

Moody's Investors Service downgraded the senior secured rating and the senior implied rating of Levi Strauss & Co. to Caa2 from Caa1, including the company's $500 million guaranteed senior secured term loan facility due 2009.

At the same time, Moody's said it confirmed the ratings of about $1.6 billion of senior unsecured notes maturing through 2012 that are rated Ca.

The outlook was changed to negative from stable.

Moody's said the downgrade was triggered by the company's announcement Thursday of a downward revision in estimated year-end performance, particularly in the areas of sales and cash generation, which would cause inventory and debt to be higher than Moody's expectations.

The current ratings still incorporate perceived negative price and volume pressure in the company's core products, which comprise the largest portion of the company's business and its increasing dependence on strong execution in the mass channel for revenue growth and margin stability.

Moody's noted the ratings are supported by the company's significant, but weakened, market position as one of the world's largest branded apparel companies and the benefit of less restrictive covenants in the company's ABL facility.

The outlook is negative. Moody's said any deterioration of liquidity, cash generation, lower product orders from traditional channels or restructuring charges beyond those anticipated by Moody's could have a negative impact on the ratings.

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