Levi Agrees on Bank Credit to Avoid Penalty

Levi Strauss & Co. got a commitment for a new $1.5-billion bank credit, which the maker of Levi’s and Dockers jeans said would reduce its borrowing costs and allow it to avoid a $32-million penalty on its existing debt.

The new credit consists of a $750-million revolving credit line and a $750-million term loan. The commitment is from Bank of America, Citicorp USA and the Bank of Nova Scotia, the San Francisco-based company said.

Privately held Levi Strauss had until Feb. 1 to raise $300 million to repay part of the $1.6 billion in bank debt it has outstanding and to avoid paying a fee of 2%, or $32 million. In October, the company had to shelve plans to sell $350 million of junk bonds because doing so became too expensive.

“We had to raise the money to avoid paying the fee. We are very pleased with our banks for stepping up,” said William Chiasson, chief financial officer at Levi Strauss.

The famed jeans maker has been in the midst of a turnaround as it seeks to revive flagging sales and regain shrinking market share.

On top of the fee, the company would have had to pay a percentage point more in yield on its outstanding bank debt, or about $16 million, if it hadn’t raised the money by the cutoff date, according to a filing with the Securities and Exchange Commission. After that, the yield was set to increase by a quarter point every quarter, according to the filing.

The new agreement will replace three bank loans expiring in January 2002, which the company negotiated earlier this year after Standard & Poor’s downgraded its credit ratings to junk status. They were a $450-million bridge loan, with a yield of 3 percentage points more than the London interbank offered rate, or Libor, and a $300-million revolving credit and $545 million one-year loan, both with yields of 3.25 percentage points more than Libor.