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Searching for a Cure: Ailing Levi Strauss & Co. Hires Corporate Doctor

Levi Strauss & Co. has hired the turnaround specialists Alvarez & Marsal - a sign of the serious issues the fabled jeans maker is facing.

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Tony Alvarez

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Phil Marineau

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NEW YORK — Is Levi’s raising a red flag?

In a move seen as an acknowledgement that its continuing turnaround efforts are failing to pan out, Levi Strauss & Co. on Monday said it was hiring the consulting firm Alvarez & Marsal to help it find new ways of reducing debt and cutting costs.

Levi’s also turned to A&M for a key executive to replace chief financial officer Bill Chiasson, who stepped down Monday. Jim Fogarty, an eight-year veteran of A&M, whose last assignment was at Warnaco Group Inc., will fill that slot.

Alvarez & Marsal is best known as a company that has been involved in the bankruptcies of such major industry names as Warnaco and textile maker Galey & Lord.

But a Levi’s spokesman said the privately owned San Francisco company is not considering filing a petition.

“That is absolutely not the case here,” he said. “ We refinanced earlier this year and that gives us ample liquidity and financial flexibility to operate.”

Financial sources said that for the near future, Levi’s appears financially sound, though they said there are concerns among lenders that the jeansmaker might violate the terms of its debt next year.

“What people want to know is are they going to default or aren’t they,” said Catherine Guinee, vice president and senior credit officer at ratings agency Moody’s Investors Service. “They do have a [revolving credit line] that, as far as I know, is still available to them. So I don’t expect a cash crunch in the next month or so.”

Still, she said, the hiring of A&M is “certainly a confirmation of the great challenges they have, both operationally and financially….We’ll have to see what Alvarez & Marsal decide is the best option for them.”

Moody’s currently has a “Caa2” senior implied rating for Levi’s, with a “Ca” rating on the company’s bonds. The outlook for both of those is negative.

Guinee said that traditionally a “Caa2” rating is given to “bonds that are in poor standing,” that “present elements of danger,” while a “Ca” rating indicates that bonds are “speculative in the high degree.”
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