Levi Strauss falls on earnings news; LIN TV dips on removal of financial guidance

By Sara Rosenberg

New York, March 26 - Levi Strauss & Co.'s bank debt was quoted about a point to a point and a half lower on Wednesday, according to market sources, with some attributing the loss to the lower-than-expected first quarter earnings released earlier this week. Also headed southward was LIN TV Corp. after the company withdrew financial guidance.

Levi Strauss was quoted closing at three different levels by three different traders. One trader had the bank debt at 97¾ bid, 98¼ offer. A second trader quoted the paper at 98 bid, 98¾ offer. And a third quoted it at 97½ bid.

Overall, all agreed that the San Francisco brand name clothing company's bank paper had dropped in the secondary loan market since the company's earnings announcement on Tuesday.

For the first quarter ended Feb. 23, net sales declined 6% to $875 million compared to $935 million in the first quarter of 2002. First-quarter gross profit was $359 million, or 41.1% of sales, compared to $399 million, or 42.6% of sales, in the first quarter of 2002. Operating income was $47 million, or 5.4% of net sales, compared to $106 million, or 11.3% of net sales, in the first quarter of 2002. EBITDA before restructuring charges, net of reversals, decreased to $58 million in the first quarter versus $124 million in the comparable period of 2002. Net loss was $24 million compared to net income of $42 million in 2002. And, total debt was $2.56 billion compared to $1.85 billion as of the fiscal year ended Nov. 24, 2002.

"We're feeling the effects of anemic economies and slow retail environments, particularly in Europe and the United States," said Phil Marineau, chief executive officer, in a news release. "We said the first half of the year would be difficult but the first quarter was even tougher than we predicted."

"As anticipated, debt levels rose this quarter due to the refinancing of our bank credit facility and completion of our senior notes offerings," said Bill Chiasson, chief financial officer, in the release. "This provides us with the liquidity to retire maturing debt and pursue our growth initiatives this year. Over the last several years, we have built a much more flexible business model that has allowed us to achieve our cash flow and debt objectives, despite the market softness."

He added that Levi Strauss is revising its expectations for full-year adjusted EBITDA margins to 9.5% to 11.5% from previous expectations of 10.5% to 12.5%.

LIN TV's bank debt headed lower on Wednesday following the company's announcement that previous earnings guidance is being withdrawn and a revised outlook is not being provided at this time. The debt was quoted at 99 bid, par ¼ offer compared to a bid right around par, according to a trader.

The Providence, R.I. television company explained that it has lost advertising revenue and incurred additional broadcasting expenses since the beginning of the war in Iraq.

"This military action has resulted in disruptions to the company's television stations' regularly scheduled programming, and some of the company's clients have rescheduled or delayed advertising campaigns to avoid being associated with war coverage," a news release said. "The company cannot predict the extent and duration of the disruption to its programming schedule or the amount of advertising revenues that would be lost or delayed as a result. In addition, the company's television stations are expected to incur additional expenses as a result of expanded news coverage of the war."

Charter Communications Inc. term loan B was said to be up a quarter of a point with a bid around 87 and an offer around 88, according to a trader. On Tuesday, the St. Louis, Mo. cable company's loan also moved about a quarter of a point higher, the trader added.

Asked what may be spurring this incremental improvement in levels, the trader responded that there was no specific impetus that he could see.

Also stronger Wednesday was AES Corp.'s bank debt, up about a half point.

Although the Federal Energy Regulatory Commission at its meeting Wednesday ruled that energy providers owe California more than $1.8 billion initially anticipated, AES continued to see the benefit from Tuesday's news of asset sales.

Its term loan B and term loan C were quoted around 96 to 97, according to a trader.

AES, an Arlington, Va.-based independent power producer battling to improve its credit quality, said Tuesday it would sell its stake in a company that owns power plants in the Middle East for about $150 million in cash. Under the terms of the deal, which is expected to close in the second or third quarter, AES will sell its 32% stake in AES Oasis Ltd. to the IDB Infrastructure Fund, which is managed by Emerging Markets Partnership.

AES also said it plans to spend $105 million in 2003 to comply with environmental laws and regulations and to prepare for any future regulations, according to

In follow-up news, Dan River Inc.'s bank meeting Tuesday was well attended and the reception was good, according to a syndicate source. Deutsche Bank is the lead bank on the deal. Fleet and Wachovia have signed on as agents as well, the syndicate source added.

The company's proposed $200 million asset-based senior secured credit facility consists of a $160 million revolver with an interest rate of Libor plus 250 basis points and a $40 million term loan with an interest rate of Libor plus 275 basis points.

Proceeds from the facility, combined with proceeds from a $150 million offering of senior notes due 2009, will be used to repay all borrowings outstanding under the company's existing credit agreement, redeem all its outstanding 10 1/8% senior subordinated notes due 2003 and pay related fees and expenses.

Dan River is a Danville, Va. designer, manufacturer and marketer of products for the home fashions and apparel fabrics markets.

Kmart Corp. held its "management round" on Tuesday for its $2 billion 36-month revolving exit financing facility, according to a source close to the deal. The retail launch for the loan has been set for April 3.

GE Commercial Finance, Fleet Retail Finance Inc. and Bank of America are the lead banks on the deal.

The revolver is priced with an interest rate of Libor plus 350 basis points, is secured by inventory and will be used to replace the company's debtor-in-possession facility and help fund working capital needs.

The Troy, Mich. discount retailer filed for Chapter 11 in January 2002 and plans on emerging from Chapter 11 by April 30.

D&K Healthcare Resources Inc. has officially decided to upsize its proposed revolver to $600 million from an originally planned $500 million after over $750 million was raised in commitments since the launch of the deal earlier this month, according to a syndicate source. Fleet Securities is sole lead arranger for the facility.

The last of the commitments came in on Tuesday, the syndicate source added.

The revolver will initially carry an interest rate of Libor plus 225 basis points. There is a commitment fee of 3/8%. The borrowing base is against receivables and inventory.

Prior to launching the loan, the company received commitments from six other banks. Bank of America and CIT signed on as co-syndication agent, GECC and JPMorgan Chase signed on as co-documentation agents, and LaSalle Business Credit and Congress Financial signed on as co-agents, a syndicate source previously told Prospect News.

The St Louis drug distributor's new revolver, which is expected to close on Friday, will be replacing the company's existing debt facilities that include a $230 million revolver and a $200 million accounts receivable securitization program.

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