Moody’s Investors Service cut its credit rating on Neiman Marcus Group and weighed in on the prospective financing package that will fund the company’s $6 billion takeover and add another $1.9 billion in debt.
The debt watchdog reduced its corporate family rating on the retailer to “B3” from “B2,” and said the downgrade “acknowledges that the company’s debt levels will increase to about $4.6 billion from $2.7 billion as a result of [Neiman’s] $6 billion leveraged buyout by Ares Management LLC and the Canada Pension Plan Investment Board.”
To fund the buyout, Neiman’s is in the market for a $2.95 billion term loan due 2020 and a total of $1.56 billion in senior unsecured bonds maturing in 2021. Moody’s rated the proposed term loan at “B2” — in-line with the company’s current rating — and the proposed notes three notches lower, at “Caa2.”
The exact terms of that financing package might change depending on how it’s received by the debt market. Ares and the pension fund are also expected to cover 25 percent of the purchase price themselves.
It’s not clear just how much Neiman’s will have to alter its strategy to cover the new debt — the more money that goes toward interest payments, the less that’s available to save as a cushion or spend on the business generally.
Moody’s said that a “sizable amount” of Neiman’s “free cash flow will be used to fund a mandatory cash-flow sweep to repay its term loan” and that it expects the company to keep less cash on hand. Neiman’s is not expected to “materially reduce its debt levels over the next 18 months.” The luxe retailer, however, is also looking at an $800 million asset-based revolving credit facility which the rating agency said supports “good liquidity” for the business.
For Neiman’s, the transfer from one set of investors to another means a deeper debt load.
The retailer’s debt rose to $3.2 billion from about $250 million when it was acquired by TPG and Warburg Pincus in 2005. The investors put $1.4 billion in equity in that deal and loaded $3.2 billion in debt onto the balance sheet of the company — which logged annual sales at the time of $4.11 billion.
If the current deal and financing go through this year as conceived, the company will have long-term debt equal to annual revenues of $4.6 billion.
Neiman’s isn’t the only retailer out in the market for debt.
Moody’s on Monday also assigned a “B3” rating to Hudson’s Bay Co.’s proposed $300 million second lien term loan, which would be due in 2021. The company agreed to buy Saks Inc. for $2.9 billion this summer and has a corporate family credit rating of “B1.”
HBC plans to cover $2.3 billion of the purchase price with first and second lien term loans.
Standard & Poor’s gave HBC’s proposed $300 million term loan a “B-minus” rating and said the company had an “aggressive” financial profile “characterized by its high pro forma debt leverage and thin cash flow coverage.”
The outlook for retail in general weakened considerably this summer, but investors and acquirers have been drawn to deals by cheap financing rates and the fear that interest rates are only going to go up in the coming months and years.
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
Sneaker reselling app @goat’s latest exhibit, "The Greatest: New York," tells the story of New York's sneaker culture. To celebrate the exhibit, an intimate crowd gathered on Thursday night at the pop-up gallery space, located at Platform in Culver City, to hear guest speaker and illustrator @esymai talk about her own rise in streetwear and women in the business. "For me I'm just someone who is creative. I like to create things," said Chang. #wwdfashion
Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast