Levi Strauss Tables Plans for Junk-Bond Sale

The junk-bond market proved too tight for Levi Strauss & Co., the maker of Levi’s bluejeans and Dockers casual wear, as the San Francisco-based company shelved a $350-million sale because of poor market conditions, market sources said Tuesday.

Levi Strauss is the fourth company in the last month--but the first carrying the highest “double-B” credit ratings--to shelve a sale of junk bonds, which carry high yields to account for their risks.

“This is an American institution, and it has a brand franchise with significant value, but this is the worst of all climates to get a sale done,” said Marty Hollenbeck, who helps manage more than $800 million for Cincinnati Financial Corp. “It’s a combination of nervousness about the sector and the market in general.”

Junk has slid as falling stock prices, billions of net cash outflows from junk bond mutual funds, falling corporate credit quality, high default rates, waning support from private investors and hedge funds and tightening lending standards among banks make it difficult, if not impossible, for many junk-rated companies to raise capital or refinance debt.

Levi Strauss, which according to credit-rating agency Moody’s Investors Service has more than $2.6 billion of outstanding debt, planned to use proceeds to pay off bank debt and for general corporate purposes.

“Conditions weren’t great for Levi to complete this sale,” said Paul Ocenasek, who manages the $800-million Lutheran Brotherhood High-Yield Fund in Minneapolis. “It probably got too expensive.”

Indeed, Levi Strauss’ Eurobonds maturing in 2003 and 2006 now yield more than 12%, and the company was considering paying yields on its new seven-year senior unsecured notes above 13%.

It did not help that Levi Strauss was trying to sell at a time when textile companies, as well as retailers, are suffering from slower sales growth and falling profit margins,

“New management seems to have stabilized the company, but we have seen a decline in the denim business,” said Steve Michaels, who invests $1.2 billion as a managing director for Financial Management Advisors Inc. in Los Angeles.

“If it were a ‘double-B’ that had a more stable track record in a more stable industry, it could get done in this market,” Ocenasek said.