Neiman Mar­cus Debt Talks by the Num­bers

WWD Digital Daily - - News - BY EVAN CLARK

When Ge­of­froy van Raem­donck, chief ex­ec­u­tive of­fi­cer of the Neiman Mar­cus Group, took the stage at the WWD CEO Sum­mit in Oc­to­ber, he started with the heart.

Van Raem­donck talked about the in­creas­ingly “trans­ac­tional” na­ture of the world, the need to re­cap­ture the hearts and minds of con­sumers — the “eco­nom­ics of love.”

But his plans to re­make the lux­ury re­tailer and trans­form it for the dig­i­tal age are de­pen­dent on a much more tra­di­tional kind of eco­nom­ics, which rely on dol­lars, cents and the abil­ity to cor­ral a di­verse group of cred­i­tors be­hind a shared prom­ise of big­ger re­turns in the fu­ture.

WWD re­ported in Septem­ber on the ebb and flow of talks with its cred­i­tors and its ef­forts to ex­tend to push back its due date to gain some ex­tra breath­ing room. But the com­pany was forced to put a fine point on the is­sues sur­round­ing its re­fi­nanc­ing in a fil­ing with the Se­cu­ri­ties and Ex­change Com­mis­sion last week.

The fil­ing of the doc­u­ment in­di­cated that one stage of ne­go­ti­a­tions had ended, but more talks might well be in the off­ing.

In short, Neiman Mar­cus is in a tough spot, pay­ing off debt built up in two suc­ces­sive pri­vate eq­uity buy­outs, but it still has a well-known brand, grow­ing con­nec­tions with a well-heeled cus­tomer base and some time to work things out.

Here, a by-the-num­bers look at Neiman Mar­cus' re­cent ef­forts to bal­ance heart with pock­et­book, ac­cord­ing to its SEC fil­ing.

$4.6 bil­lion

Neiman Mar­cus has a be­wil­der­ing ar­ray of growth-in­duc­ing ini­tia­tives in the works and on the draw­ing board — from ef­forts to cul­ti­vate cus­tomers and ex­pand dig­i­tal per­son­al­iza­tion to plans to grow bergdor­f­good­man.com and the dig­i­tal lux­ury stylist ex­pe­ri­ence. Sales topped $4.9 bil­lion at the com­pany last year.

But job num­ber one is to get out from the com­pany's $4.6 bil­lion debt load, which in­cludes a $2.8 bil­lion term loan due in Oc­to­ber 2020 and two sets of bonds and an as­set-backed loan due in 2021.

Last fis­cal year, the com­pany paid more than $307 mil­lion to cover in­ter­est on that debt. Even more trou­ble­some are the up­com­ing ma­tu­ri­ties. When the term loan comes due and likely a year be­fore, Neiman Mar­cus will not be able to sim­ply reach into its cof­fers and pay up. It needs to reach some kind of a deal with lenders or the eq­uity in the firm, ac­quired by Ares Man­age­ment LLC and the Canada Pen­sion Plan In­vest­ment Board for $6 bil­lion in 2013, will be in jeop­ardy.

$700 mil­lion

Neiman Mar­cus' debt weighs in at 10.2 times its an­nual earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­za­tion — an ex­ces­sive level for the world of depart­ment store re­tail­ing, where Nord­strom Inc.'s debt, for in­stance, sits at 1.7-times EBITDA.

And while Neiman Mar­cus un­doubt­edly would like to re­duce its debt, it is pay­ing par­tic­u­lar at­ten­tion to the other side of the ra­tio and look­ing to drive ad­justed EBITDA to more than $700 mil­lion within five years.

That's a long haul from ad­justed EBITDA of $458 mil­lion for the last 12 months. Cred­i­tors have been weigh­ing the risks of giv­ing Neiman Mar­cus time to fol­low through on its plans and try to hit that goal or to try to get what they can as soon as pos­si­ble.

$1.9 bil­lion

To get more time, Neiman Mar­cus is go­ing to have to give some­thing more, too. The com­pany's pro­posal to re­struc­ture its debt in­cludes the ad­di­tion of col­lat­eral — namely the value of its leases, which it pegged at $1.9 bil­lion.

The re­tailer pro­posed that term-loan lenders could “re­ceive liens and struc­tural se­nior­ity on all un­en­cum­bered ground leases and op­er­at­ing leases.”

Neiman Mar­cus cited a third-party val­u­a­tion that pegged the value of its leases at $1.6 bil­lion plus another $250 mil­lion tied to ground leases.

While that's a lot of money and a solid cush­ion, the ques­tion in debt cir­cles is just how true-to-life those es­ti­mates are and if cred­i­tors could re­ally cash in on those leases.

3

Neiman Mar­cus' bal­ance sheet is a bal­anc­ing act in­volv­ing the com­pany and its eq­uity own­ers, term-loan hold­ers and two groups of bond­hold­ers and other lenders.

The ne­go­ti­a­tions in Oc­to­ber and Novem­ber in­cluded three pro­pos­als — none of which did the trick.

One group of bond­hold­ers was look­ing for a $250 mil­lion pay­down, ex­tended terms on the rest of the debt and eq­uity in the com­pany. Another group of cred­i­tors would push back the term-loan ma­tu­rity for three years, ad­just terms and see it backed up by the as­sets of the MyTheresa busi­ness. And the com­pany sug­gested more run­way on the term loan, an ex­change of the un­se­cured bonds and $250 mil­lion in new first lien notes tied to an un­re­stricted sub­sidiary, Nancy Hold­ings.

2020

The debt talks might have sim­ply come too soon to re­ally reach a res­o­lu­tion.

For now, Neiman Mar­cus can live with the sta­tus quo, run its busi­ness, con­tinue its trans­for­ma­tion and keep up with debt pay­ments.

But as time marches on, the pres­sure will rise. Cred­i­tors and Neiman Mar­cus' eq­uity back­ers will have to gauge just what their hold­ings will be worth if the com­pany can't re­fi­nance.

A reg­u­la­tory fil­ing re­vealed a del­i­cate debt dance with lenders.

Neiman Mar­cus is still try­ing to fig­ure out what to do with its debt load.

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