NEW YORK--Salomon Bros. began covering the textile and apparel industry through its bond research department Friday, releasing a 100-page report on 28 companies--some of which will be less than thrilled by the results.
Among the companies to avoid, says the report, are Plaid Clothing Group, Cherokee Inc. and JPS Textile Group.
Rosemary Sisson, co-author of the report, said Plaid is regarded as "an unstable situation because we still don't know how the negotiations for the acquisition of GFT SpA are going and how they plan to finance it."
Cherokee, the report points out, is currently in the midst of its second major restructuring in a year and a half.
And although JPS, formed through a leveraged buyout in 1988, has sold its automotive group to reduce debt, "it also gave up the significant cash-flow of this subsidiary," the report says.
In a statistical review, Salomon points out that in the first nine months of fiscal 1994, JPS had a cash flow deficit of $18.3 million against a year-ago deficit of $14.1 million.
In seeking value in the high yield (junk bond) sector, the report notes that investors should seek out companies that are working toward reducing leverage with the objective of becoming investment grade before the bonds mature. As an example, the report singles out Fruit of the Loom, which became investment grade in 1994.
Two companies that seem to be headed in that direction, according to Salomon Bros., are Dominion Textile and Fieldcrest Cannon. Both were formerly investment grade. Dominion is reducing its leverage and could become investment grade again by 1995. Salomon recommends the purchase of Dominion's 8.875s maturing in 2003.
As for Fieldcrest Cannon, the report says that company will reduce its debt through divestiture of noncore businesses and excess cash flow. It recommends the purchase of 11.25 percent subordinated bonds maturing in 2004.
Among recommendations for investment grade bonds are those of Fruit of the Loom, Phillips-Van Heusen and V.F. Corp. The report also notes that while Burlington Industries and the Warnaco Group currently have no public debt outstanding, Salomon expects them to tap the public market within the next 12 to 18 months and provide an opportunity for investors to diversify within the textile-apparel industry.

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