Fitch Upgrades Ratings on Levi Strauss; Positive Outlook

Business Wire, Feb 21, 2007

NEW YORK -- Fitch Ratings has upgraded its ratings on Levi Strauss & Co. (Levi) as follows:

--Issuer default rating (IDR) to 'B' from 'B-';

--Asset-based loan (ABL) to 'BB/RR1' from 'BB-/RR1';

--Senior unsecured debt to 'BB-/RR2' from 'B/RR3'.

Approximately $2.8 billion of debt is affected. The Rating Outlook is Positive.

The rating upgrades reflect the improvements Levi has made to streamline its business while focusing on product mix and a more premium offering in its operating segments. These initiatives have enabled the company to stabilize revenues while growing profitability, resulting in a strengthened credit profile. The ratings also consider Levi's well known brand name, geographic diversity, and liquidity position, offset by high debt balances and the competitive nature of the denim and casual bottoms market. The Positive Rating Outlook reflects Fitch's expectation that positive sales trends could lead to further rating improvement.

Management's focus on streamlining its merchandise offering and growing its core product lines has enabled it to stabilize its revenues. In addition, Levi's restructuring activities, including changing sourcing arrangements, realigning business units, and closing unproductive facilities, have led to reduced costs in its business. As a result, revenues have remained around $4.2 billion for the fiscal year ending Nov. 26, 2006, while operating profit increased to $627.8 million from $600.1 million in fiscal 2005. Fitch expects that despite challenges in the company's Levi Strauss Signature brand, it will continue to benefit from the lower cost structure and product investments.

As a result of improved operating profit and a lower debt balance, which declined by over $100 million in 2006, credit metrics have strengthened, with leverage (measured by total debt to EBITDA) falling to 3.8 times (x) for the fiscal year ending Nov. 26, 2006 from 4.0x in fiscal 2005; EBITDA coverage of interest increasing to 2.3x from 2.2x, over the same period. In addition, the company maintains strong liquidity, with cash balances of $279.5 million and net available borrowing capacity of $317.5 million as of year-end. Fitch anticipates that cash flow generation and cash on hand will be sufficient to fund taxes, interest payments, and capital expenditures as the company plans to increase its company owned and operated store base in 2007 and beyond and further implements SAP.

Fitch derives recovery values and recovery ratings (RR) from an analysis and valuation of Levi's operations. The 'RR1' recovery rating assigned to Levi's $550 million secured asset-based bank facility, which is secured by a first priority lien on domestic receivables and inventory, is based on Fitch's expectation that this piece of debt would receive full recovery in a distressed scenario. Availability under this facility is dependent upon the level of Levi's domestic accounts receivable, inventory, and cash and cash equivalents. The recovery for the senior unsecured debt would be good at 71%-90; therefore. Fitch has assigned a 'RR2' rating to this class of debt.

Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors can be found at www.fitchratings.com/recovery.> Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.