By  on April 7, 2005

NEW YORK — Leveraged buyouts could be back in vogue — with The Neiman Marcus Group the first in the latest fashion.

As speculation continues over who will bid for Neiman’s — with names ranging from Apollo to Texas Pacific Group — one hedge fund manager said a Neiman’s deal has the potential to be an LBO under which the financial structure would be $2 billion of equity and $3 billion of debt.

The fund manager said it would result in a 60 percent debt-to-capital ratio, which is considered “fairly conservative” when most LBOs have an average debt-to-capital ratio of 70 percent. In addition, a private equity buyer would still be able to pay down the debt within a decent time frame because a substantial portion of Neiman’s cash flow, which is about $450 million, would be available to do so.

Neiman’s is expected to name a buyer some time this month, financial sources said.

But there could be another wrinkle in the chase for Neiman’s. Real estate investment trusts that have Neiman’s stores in their mall portfolios, Simon Property Group and General Growth Properties, are said to be exploring the idea of joining forces with a private equity group so they can gain control over the value of the real estate, as well as possibly where Neiman’s might expand its store locations, according to financial and real estate sources. Several hedge fund managers said they think the Neiman Marcus business can support up to 70 stores. Neither executives at Simon nor General Growth could be reached for comment.

Neiman’s isn’t the only potential retail LBO on the horizon, though. J.C. Penney & Co. recently was said to be the target of an LBO led by Cerberus Capital Management and involving other financial partners, including the Carlyle Group. With J.C. Penney as a target and Cerberus as an LBO sponsor, a deal involving a consortium is possible, but it would take some work. And Cerberus would first have to line up some financing. One financial source said Cerberus had approached J.P. Morgan to underwrite a deal, but was turned down. The private equity firm is now said to be knocking on other financial doors to see if there’s any interest in the underwriting.

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