Levi bonds continue rise; Air Canada easier as carrier seeks Plan B

By Paul Deckelman and Sara Rosenberg

New York, April 8 - Levi Strauss & Co. bonds continued firming during Thursday's abbreviated pre-holiday session, even though there was no firm positive news out on the San Francisco-based blue jeans maker. Elsewhere, Air Canada's bonds were seen slightly easier as the insolvent Canadian carrier got another extension of its court protection and set about trying to line up an alternate equity investor, now that Victor Li has effectively pulled his deal off the table.

Distressed bank-loan trading, meanwhile, was seen as virtually non-existent.

Levi's 11 5/8% notes due 2008 were being quoted at 81 bid, up from 80.5 on Wednesday, while its 7% notes due 2006 were likewise half a point better at 79.5 and its 12¼% notes due 2012 went to 80.5 from 80 previously.

A trader who saw the bonds rise about a point to those levels said he was baffled by the movement, which follows even larger gains earlier in the week, including a rise of as much as four or five points across the board on Tuesday and another two-point advance on Wednesday.

"Nobody can figure out why" these bonds keep going up, a trader in distressed bonds said. "There's a lot of rumors - but not a lot of facts. So these bonds are pretty strongly bid."

At another desk, a trader - noting that Levi paper was up something like six or seven points on the week, attributed the sharp appreciation in the bonds to "a big short in the Street - no news, just a big trader short in the Street. I think once the bonds are covered and their numbers come out [this coming week] I expect they will trade back a little softer

"All indications point to the numbers being pretty cruddy, as they usually are," he continued, "unless they had a really good Christmas selling season, I expect the numbers to be below estimates."

Levi, he declared "is a pig. I don't like it. The only reason it's moving up is people just have to cover the shorts. There's no news otherwise."

Not everyone necessarily agrees with that assessment. One investment advisory service reportedly attributed the rise in the company's bonds to anticipation that the company may show improved earnings. The service said in a recent research note that it is looking for modestly better results and improved credit measures.

In early March, Levi reported a 2003 net loss of $349 million and its seventh straight year of declining sales.

Winn-Dixie up

Elsewhere, the trader noted that just as trader shorts were pushing up Levi Strauss bonds, "it's the same deal" with Winn-Dixie Stores Inc., "just trader shorts."

Actually, he said, "there's been bad news out on those guys the last week - but they're still moving up, because of the short." He quoted the troubled Jacksonville, Fla.-based supermarket chain operator's 8 7/8% 2008 at 90 bid, 92 offered, up from recent levels in the 80s, "on bad news, which is unbelievable to me," apparently referring to the unexpected quarterly earnings loss, reported some weeks ago, which threw the bonds for a sharp loss, from which they have gradually recovered, "inching their way back up" to present levels.

"I hate that name too," he said. "After doing a little bit of research, I think it's obvious that Winn-Dixie's time is past, with all of the new chains that have come into their markets" in the southeastern U.S., especially the retailing industry's new 800-pound gorilla, Wal-Mart Stores; "Wally" has aggressively been opening new super-stores, which combine traditional discount stores with supermarket-type operations, in many of Winn-Dixie's traditional markets. "They're trying to avoid [bankruptcy]," but I'm just waiting for them to collapse."

However, other opinions are also being heard; on Friday Businsess Week put out a piece in which it said that there has recently been sizable stock buying by directors and other insiders, perhaps a sign of optimism about the company's prospects for finding an equity investor (it's currently looking for one) or even being bought out by Albertson's or some other larger supermarket operator.

"Is a buyout out of the question?" the magazine asks rhetorically. Perhaps not. It quotes at least one equity analyst - Mark Husson of Merrill Lynch - as believing that Winn-Dixie "still has a strong following in its core markets, it has little debt, it is non-union, and it has no big benefit and pension plans."

As an alternative, according to Husson, the controlling Davis family could take the company private by buying the shares it doesn't own. Those shares currently trade for $7.50; the Merrill Lynch analyst pegs the company's breakup value at $10.

Air Canada sinks

Elsewhere, a trader in distressed bonds saw Air Canada's notes down a point on the session, at 32 bid, 34 offered. Another distressed-debt trader saw them at the same level and said they were "not doing very much," and observing that "they've been under pressure."

The troubled carrier sought - and received - additional time under the Companies Creditors' Arrangement Act - Canada's equivalent of the U.S. Bankruptcy Code - as it tries to determine its next move, now that investor Victor Li has bailed out on his proposed C$650 million investment in the carrier.

The airline's insolvency protection was extended to May 21.

Li's Trinity Time Investments would have taken a 31% equity stake in return for that badly-needed equity infusion, but he said he would not extend the deadline attached to the offer after Air Canada's unions declared last weekend that they had made enough concessions and would make no more.

Li had been seeking union cooperation in changing the airline's pension set-up to a defined contribution system - like a 401(k) - rather than the traditional defined benefit mode, which could leave an underperforming company stuck with huge pension obligations it might be unable to pay. When the unions adopted what he called a "confrontational" stance, he withdrew the offer.

Air Canada is looking for an alternative financial savior - and may turn to the party whom Li bested in a court fight last year, Cerberus Capital Management. The New York-based buyout firm had put together a similar deal to Li's but was rebuffed late last year by the Canadian courts.

Cerberus said it is in discussions with the court-appointed monitor overseeing the airline's restructuring to have the injunction issued at the time of that court case lifted and to also void a confidentiality agreement that prevents it from talking with Air Canada's creditors.

Other distressed names heard around include Weirton Steel Corp., whose bonds were heard trading around 36 bid, 40 offered, as the Weirton, W.Va.-based steelmaker - which had agreed to International Steel Group Inc.'s $258 million stalking-horse bid - considers a slightly higher rival bid from a bondholder-led group that came in just under the April 6 deadline for new submissions; both bids involve some limited level of debt assumption.

And Federal-Mogul Corp.'s bonds continued to languish around the 25-26 bid area; the Southfield, Mich.-based auto parts maker's plans for emerging from Chapter 11 were handed a setback this past week as objections were raised to how its plan might deal with asbestos claims filed against predecessor companies should the courts rule that those companies' insurers are not liable for them.

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