UPDATE: October 30, 2018: S&P Global and Moody's have both downgraded Neiman Marcus' credit rating deeper into distressed territory following reports that the retailer is talking with creditors about extending and possibly reducing its debt load. In a release, analysts with S&P, which lowered Neiman's rating to CCC-, said they think that "the company's weak operating performance, despite some stabilization over the last 12 months, and minimal free operating cash flows have left it with few options to refinance its onerous capital structure" at the original debt terms. The analysts added that they believe Neiman could announce a distressed debt exchange or restructuring within six months.
Dive Brief:
- Neiman Marcus is talking with creditors in an effort to push out debt maturities and stay out of bankruptcy, according to reports in Debtwire, which first broke the news, and The Wall Street Journal. A Neiman spokesperson would not comment on the reports but noted the company has around $800 million in liquidity and said in a statement that it "has ample runway to refinance debt with no near-term maturities."
- The talks center around pushing out maturities looming in 2020 and 2021 — when almost all of Neiman's $4.7 billion in debt comes due — as well as potentially reducing the total debt load, according to the Journal, which cited unnamed sources in its report.
- The newspaper also reported that investment firms the Capital Group and Oaktree Capital — the latter of which is also reportedly involved in debt restructuring talks with David's Bridal — are involved in the talks on the creditor side. Bondholders expect that Neiman and its owners will use the MyTheresa e-commerce unit — currently the topic of a dispute with another creditor — as a bargaining chip in the talks, according to the Journal.
Dive Insight:
The story of Neiman Marcus over the past year is a recent, useful case study of distressed retail.
The luxury department store has strung together a handful of quarters of sales improvements, boosted in part by efforts to become "digital first." But even so, it has still been posting losses as it struggles under a large debt load leftover from leveraged buyouts. (The company was acquired in 2005 by private equity firm Leonard Green & Partners and then sold in 2013 to Ares Capital.)
The company's debt has long been rated at distressed levels given the company's high leverage, and the service CreditRiskMonitor pegs the retailer's risk of bankruptcy within the next 12 months at up to 50%. A deal with creditors could lower that risk, at least for now. Debt deals with creditors have recently bought time for J. Crew, 99 Cents Only and Charlotte Russe, among others. Wedding apparel retailer David's Bridal is also in talks with creditors in an effort to ease its debt burdens and stave off bankruptcy.
If it proves true that MyTheresa is a bargaining chip in negotiations with creditors, that could be an interesting wrinkle in how those discussions play out. This year that unit went from under the retailer's corporate umbrella to a parent subsidiary controlled by Neiman's owners and potentially out of the reach of creditors.
The move did not go unnoticed. In September, investment firm Marble Ridge decried the corporate rearrangement — saying that it had "all the hallmarks of an intentional or constructive fraudulent transfer" — and has threatened legal action.
Neiman's position has been that the move was proper. "The organizational change is consistent with how we have operated MyTheresa as an independent entity, which we believe will best allow both companies to grow and succeed," a spokesperson for Neiman Marcus told Retail Dive in a statement last month, adding that "[i]mportantly, this distribution was expressly permitted by the company's credit documents."
There's a reason for the tension: MyTheresa has been a very successful piece of Neiman. "[A]s we now know, the gains being made online, while very good, were made a lot better with the inclusion of MyTheresa," Philip Emma, a retail analyst for Debtwire, noted in an Oct. 18 report emailed to Retail Dive. He noted that for fiscal 2018, MyTheresa's revenue grew 37.1% versus about 10% for Neiman's online revenue without the unit.
"From the company's perspective, the results from MyTheresa were never part of the business support for its U.S. debt, so nothing changes," Emma said in the report. "But optically, the gains it has been posting are less impressive now that it's clear how strong the growth was outside the U.S."
