Fitch cuts Levi Strauss to B-

Fitch Ratings downgraded Levi Strauss & Co.'s senior unsecured debt to B- from B and $500 million term loan to B+ from BB-, following the company's revision in its earnings guidance for 2003.

The outlook remains negative.

The company's revised guidance has forecasted revenues to decline 2% in fiscal 2003 versus previous expectations that revenues would increase modestly. Softer sales are being driven by weakness at U.S. department stores as well as product mix changes in Europe, where sales of lower priced products, 580 jeans, are outpacing its sales of higher priced 501 jeans.

In addition, Fitch said sales of the Levi Strauss Signature line at Wal-Mart also have been slower than anticipated for the company's men's line, somewhat offset by stronger sales of its lower margin women's and children's lines. Weaker sales, coupled with persistent cost pressures, are expected to result in operating profit that is down dramatically from prior expectations.

Though debt levels at year-end are forecasted to remain unchanged, credit measures will weaken significantly due to poorer operating performance.

Leverage (total debt/EBITDA) is now expected to be above 6.0x versus 5.3x in the latest 12 months ended Aug. 24, and interest coverage is projected to weaken to below 1.5x, Fitch said.

Fitch said the company maintains adequate liquidity, with cash on the balance sheet and no borrowings expected on its asset-based revolver. Given the limited upcoming debt maturities, with the next significant payment not due until 2006, and absence of stringent covenant levels, Fitch said it believes Levi is operating with some financial flexibility to remain current on its financial commitments.

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