S&P cuts Levi Strauss senior debt to CCC

Standard & Poor's said it lowered its long-term corporate credit and senior unsecured debt ratings on Levi Strauss Inc. to CCC from B. Concurrently, the bank loan rating on the company's $650 million asset-based revolving credit facility due 2007 was lowered to B from BB, and the rating on the $500 million term loan facility due 2006 was lowered to B- from BB-.

The outlook is developing.

"The rating actions follow Standard & Poor's operational review and Levi Strauss' announcement that it has hired Alvarez & Marsal (A&M) to accelerate the company's turnaround plan after a period of lackluster sales and poor performance," said S&P credit analyst Susan Ding.

At the same time, the company announced the departure of its chief financial officer. Alvarez & Marsal is expected to advise Levi's on strategies to reduce debt and costs.

Furthermore, operating results and financial measures will be weaker than S&P's expectations in light of the revised revenue and earnings figures. S&P said it remains concerned about the company's ability to revitalize sales and margins given the current soft retail environment.

S&P said that while there are no immediate liquidity issues, the beneficial impact of any recommended cost and debt reduction strategies will not likely be realized in the near term. More important, with the management changes and the retention of Alvarez & Marsal, the company's business direction is uncertain.

S&P said it recognizes that, with Alvarez & Marsal exploring alternatives, the ultimate outcome of Levi's financial strategies could be detrimental to bondholders.

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