Levi Strauss & Co : Issuance focus

Levis Strauss & Co is preparing to issue a € 475m euro-denominated unsecured bond ($ 501m) with a 10-year maturity NC5 to refinance at make-whole its dollar-denominated $ 525m bond maturing in 2022 and bearing a 6.875% coupon. Note that the size of the issue has been increased by € 25m compared to the size planned initially. The bond will contain a change of control clause at 101% (no portability) and an equity claw-back clause of up to 40%.The price-talk announced was at between 3.50% and 3.625%. The yield seems to be fair enough when compared to the yield offered by existing notes on the secondary market, although there is no close peer in terms of sector. In comparison, the 2026 Casino (BB+) and the 2026 Telecom Italia (Ba1/BB+) bonds offer a 3.2% yield each. The LS&Co. bond would therefore offer a 30bp to 42.5bp pick-up for just less than one year and one notch down in Moody's and Fitch ratings (the bond is rated Ba2 and BB by the agencies respectively). While the transaction appears to be adequately priced in, we believe that it does not have genuine upside potential to outperform that level, especially as the newsflow will have to be monitored in 2017 with probable pressure on results and ultimately a possibility to use cash for acquisitions. >