Levi Strauss & Co. 's announcement that it has replaced CFO Bill Chiasson and hired management consulting firm Alvarez & Marsal has led Fitch Ratings to downgrade the company's $500 million term loan from B+ to B. Fitch considers the management changes to be a material event that could possibly lead to a debt restructuring in the near-to-intermediate term. Jim Fogarty , a managing director of Alavarez, has stepped in as interim cfo.
Fogarty was hired to perform an analysis of the business and help identify opportunities to take additional costs out of the business, improve operational efficiency, look at ways to generate cash and to continue to pay down debt, a Levi Strauss spokeswoman said. The ratings downgrade reflects an outcome that is speculative, the spokeswoman noted. "At this point it is very premature to look at what will be the outcome of the analysis and what recommendations will come from it," she added.
Fitch acknowledges that the jeans maker has adequate liquidity and limited debt maturities and is not in danger of violating covenants in the near term. But the ratings agency feels that additional cost eliminations will not materially affect profitability and/or Levi Strauss' ability to increase cash flow generation to reduce debt in the year ahead. Last month, Fitch downgraded its credit rating due to a revision in the company's earnings guidance for 2003.
* Markdowns continue to be necessary for competitive reasons for Payless ShoeSource as discounters and mid-tier stores, such as Wal-Mart , Target , Kohl's , J.C. Penney and Sears , can be aggressive in their pricing because footwear is not their major focus. Moody's Investors Service has lowered the rating of Payless' senior bank credit agreement from Ba2 to Ba3. The downgrade reflects the competitive challenges to comparable store sales from the larger, more diversified retailers with greater financial flexibility as well as the slow decline in the company's domestic market share and the pressure on profitability from the extremely promotional pricing environment. Calls to Payless officials were not returned by press time.