Levi bonds firm, then fall; Seminis hitting road with $190 million deal

By Paul Deckelman and Paul A. Harris

New York, Sept. 10 - Bonds of Levi Strauss & Co. gyrated around on Wednesday, after the San Francisco-based apparel maker issued preliminary third-quarter results and guidance and outlined several initiatives it is pursuing, including a debt recapitalization, which sent the notes up - but they came back down later in the session when Standard & Poor's weighed in with a two-notch ratings downgrade.

In the primary market, no deal terms emerged during the Wednesday primary market session although two more offerings were loaded onto what sources are characterizing as a building forward calendar.

Seminis Vegetable Seeds Inc. is hoping to harvest $190 million in new cash from debt investors and was heard getting ready to hit the road Friday to market its upcoming 10-year bond deal.

And Advanstar Communications Inc. showed up with drive-by business expected to be priced Thursday morning: a $50 million add-on to its recently priced 10¾% notes.

Levi Strauss bonds were quoted by market participants down about two points on the session, the S&P downgrade late in the day overshadowing the positive news the company had put out earlier.

A trader quoted the company's 11 5/8% notes due 2008 as having pushed as high as 97.5 bid, 98.5 offered during the morning, before falling as low as 93.5 bid. "I didn't see a right [offered] side. I don't know if they're just afraid to offer cheaper or there's just not much going on but it's definitely off a couple."

At another desk, the 11 5/8s were seen at 94 bid, 96 offered while the company's 12¼% notes were at 92.25 bid, 94.5 offered after having been "moving around," a participant said. "They were up two points at the open but then came back down to end down a point or so from last night."

The trader noted that S&P had lowered Levi's ratings to B from BB- previously, citing the jeans maker's announcement that the company will seek a temporary waiver under its existing credit facility as it finalizes a new $1.15 billion refinancing of its current secured bank credit facility and accounts receivable securitization program.

Levi, in announcing plans for a new $1.5 billion credit facility to be led by Banc of America Securities LLC, admitted in its statement that "due to the difficult environment, we cannot be sure that we will remain in compliance with all of the financial covenants set forth in our existing credit facility, and we believe it is appropriate to seek a temporary waiver that we expect to remain in place until the new financing is finalized."

"I can't imagine that would bode too well for them," the trader said, although he pointed out that the bonds had been driven up "at least three points" earlier on the mostly more bullish sounding company announcements.

"Then they get downgraded and it mushes them, all on the same day. Someone knew something - that's for damn sure!"

In downgrading the debt, S&P also cautioned that Levi's year-to-date results "have been well below expectations because of a weak economic environment and continued apparel price deflation, which will likely continue for the foreseeable future. Although, the rollout of the Signature product line at Wal-Mart Stores Inc. seems to be going according to plan, it will not be sufficient in the near term to offset the current difficulties at retail and in Levi Strauss' European business."

S&P said that competition in the pants segment of the apparel business, Levi's bread and butter, "continues to be intense with VF Corp.'s Lee and Wrangler brands (combined the number-one market position), as well as with many other designer and private label brands."

The ratings agency noted that Levi Strauss "still holds the No. 2 market share in the U.S. for jeans based on its core Levi's brand. However, in the last several years that position has been challenged by competitors who have more effectively met consumer preferences. Like Levi Strauss, though, most industry participants have experienced weakness in the past two years because of dampened consumer spending."

The cautionary message from S&P threw cold water on what had up till ten been a smart rally in the company's bonds early in the session, powered by glowing estimates from the company, which estimated that third-quarter net sales would come in between $1.078 billion and $1.085 billion - a 6% to 7% increase over 2002 third-quarter sales of $1.018 billion. On a constant-currency basis, net sales are estimated to increase approximately 2% to 3% for the period.

Additionally, Levi forecast that its operating income for the quarter is expected to be between $95 million and $100 million, versus $96.7 million for the same period a year ago. Net income, though, is expected to jump to between $24 million and $28 million - anywhere from a 75% to 104% increase from the year-earlier $13.8 million result.

Although Levi cautioned that it expects full-year sales to be essentially flat with 2002, plus or minus 2% on a constant-currency basis, chief executive officer Phil Marineau was quoted in the statement as proclaiming that "on balance, I'm pleased with what we achieved in the third quarter. Our results were consistent with the expectations we laid out at the start of the quarter."

He added that "importantly, sales and profits were up, fueled by the successful launch of our new Levi Strauss Signature brand into 3,000 U.S. Wal-Mart stores. Initial consumer sell-through has been very good."

A market observer quoted the 11 5/8% notes late in the session near the 96 area, which he said was down about two points from the day's peak levels early on.

Elsewhere, a market source said that Conseco Inc. debt was "the biggest thing," with the Carmel, Ind.-based insurance and financial services concern's extended bonds, such as its 9% notes due 2008 and 10¾% notes due 2009 heard trading as high as 86 and its unextended bonds pushing up to 51 bid, both categories of bonds up several points from Tuesday's level bid (Conseco early last year exchanged much of its then existing public bond debt for new notes with longer maturities, which trade at a considerable premium over the remaining older notes).

Conseco filed for Chapter 11 in December after trying unsuccessfully to cope with the mountain of debt it took on with the debt-financed and ultimately disastrous acquisition several years before of Green Tree Financial - which it operated as Conseco Finance Corp. It said on Tuesday that the bankruptcy court had approved its plan of reorganization and that of Conseco Financial, clearing the way for Conseco to jettison the money-losing unit by selling it and then emerge from bankruptcy itself.

Qwest Communications International Inc. was "a little stronger," a trader said, in the wake of Tuesday's completion of the $7.05 billion two-stage sale of its Dex Media directory business to buyout firms The Carlyle Group and Welsh, Carson, Anderson and Stowe. With the approval of the final $4.3 billion portion of the deal (the other $2.75 billion sale had been completed some months ago), Qwest is expected to use the proceeds to help reduce a debt load which had been threatening to choke the Denver-based telecommunications operator.

The trader said that the Qwest bonds "had a pretty good bid" to them, while adding that "there was not much merchandise [for sale] around. There was nothing special, but it had a good tone."

A market source saw Qwest Capital Funding's 12¼% notes due 2012 at 95 bid, 96 offered.

Another trader saw Qwest "looking good. The short paper was especially in favor. There definitely was some strength."

He quoted Qwest's 7.20% notes due 2004 as having firmed to 101 bid from prior levels at 99 bid, par offered, while its 13½% notes were at 116 bid, up at least two points from recent levels.

Despite his assertions of the shorter-dated paper's strength, he also saw even long-dated bonds such as Qwest's 6 7/8% bonds due 2033 at 85 bid, 86 offered, up three points from recent levels.

Indications Tuesday from two of Qwest's regional Bell operating company rivals, SBC Communications Corp. and BellSouth Corp. that they plan to try to hold the line on capital expenditures in the face of increasing competition putting pressure on profits does not bode well for companies that supply telecom equipment; Lucent Technologies Inc. bonds "got beat up," the trader said. The Murray Hill, N.J.-based maker of telecom gear's benchmark 7¼% notes due 2005 fell two points to 68 bid, 69 offered, he added.

Union Carbide Corp. bonds - which took a big plunge last week after Moody's Investors Service downgraded its levels to a junky B1 from Baa2 previously, citing asbestos liability concerns, were "up big" Wednesday, a trader said, apparently bouncing back partly from their recently oversold state.

"They popped pretty good," he said. "The buyers came in as the high grade guys pretty much liquidated their accounts and the high yield guys came in to buy."

He quoted the Danbury, Conn.-based chemical market's bonds up at least two or three points across the board, with its 6.70% notes due 2009 rising to 92 bid, 94 offered from opening levels around 89 bid, 91 offered. Its 6.79% notes due 2025 firmed two points to 93 bid, 95 offered.

In the primary, one sell-sider noted the two deals added to the calendar Wednesday and commented: "Things are picking up.

"The secondary market feels good. Things there are trending flat to better since last week, so it feels strong."

Asked if there is evidence that money is continuing to flow into the asset class after the phenomenal inflows into high-yield mutual funds reported over the past three weeks by AMG Data Services, the official said: "There doesn't seem to be any direct evidence one way or another as far as this particular week is concerned. However people generally expect money to continue to flow in over the near term."

The roadshow begins Friday for Seminis' offering of $190 million 10-year non-call-five senior subordinated notes (B3/B-), which are expected to price on Sept. 22.

Citigroup and CIBC World Markets are joint bookrunners the Oxnard, Calif.-based fruit and vegetable producer's deal.

Meanwhile, price talk is 101 area on Advanstar's quick-to-market $50 million add-on to its 10¾% second priority senior secured notes due Aug. 15, 2010 (B3/B-), expected to price Thursday morning. Credit Suisse First Boston is bookrunner.

The Boston-based business information company sold $230 million of the notes in a downsized two-tranche offering on Aug. 4. The notes priced at par to yield 10¾%, wide of the 10¼%-10½% price talk.

Price talk of 9½% area was heard on Quintiles Transnational Corp.'s $450 million of 10-year non-call-five senior subordinated notes (B3/B), which are expected to price on Friday via Citigroup.

And price talk of 7¼%-7½% emerged on Tom Brown, Inc.'s $225 million in units of 10-year non-call-five senior subordinated notes (Ba3/BB-) to be issued jointly with Tom Brown Resources Funding Corp. The deal is expected to price later this week via Goldman Sachs & Co.

A buy-sider who spoke Wednesday on background reported that the new deal pipeline may be starting to reflect the cash-soaked conditions of the market.

"We're seeing a lot of stuff get shoved out the door," said this source. "People in this business seem to have short memories but the heavy defaults of a couple of years ago haven't faded from memory.

"There is a little discipline on the buy-side," the source added. "It's not like the high-yield market is funding a new industry like telecom right now.

"Put it this way, if you price something right it will get done."

Meanwhile from Wednesday's action in the emerging markets the indicative coupon is 7¾%-8% for PT Aneka Tambang's offering of approximately $270 million seven-year non-call-four offshore notes (B3/B) to be issued through Antam Finance Ltd. The deal is expected to price later this week.

ABN Amro is the bookrunner on the Jakarta, Indonesia gold and nickel producer's deal.

And price guidance of 9½%-9¾% was heard on Innova S de RL de CV's $200 million of senior unsecured notes, in seven-year non-call-four and 10-year non-call five tranches (B3/B+), expected to price late Friday or early Monday.

Citigroup and JP Morgan are bookrunners on the Mexican satellite television service company's offering.

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