By  on December 16, 2008

Moody’s Investors Service on Monday lowered Neiman Marcus Inc.’s rating outlook to negative from stable and downgraded its senior unsecured debt to “B3” from “B2.”

The downgrade keeps Neiman’s within the B category — considered “speculative” and subject to “high credit risk.” Other ratings for Neiman’s were affirmed at B1.

The actions follow the company’s disclosure last week that its first-quarter net income sank 83.6 percent, to $12.9 million, as comparable-store sales dropped 14.5 percent. Moody’s cited the Dallas-based retailer’s debt-to-EBITDA ratio of 5.3 and its free-cash-flow-to-net-debt metric of 1.1 percent.

“This change in outlook reflects Moody’s concern with the increasingly negative view of consumer spending during the important upcoming holiday season and beyond,” said Ed Henderson, Moody’s vice president and senior analyst. “This will put further pressure on Neiman’s credit metrics.”

Texas Pacific Group and Warburg Pincus LLC acquired Neiman’s in 2005 for about $5.1 billion in cash and took the company private. Moody’s last rating action on the retailer was in February 2006, when it affirmed the corporate family rating of “B1.”

Although private, Neiman’s has public debt and reports quarterly figures.

In its most recent earnings statement, for the three months ended Nov. 1, Neiman’s listed notes and debentures of $2.95 billion, up fractionally from the prior-year period. Including this amount, total long-term liabilities were $4.18 billion. Current liabilities were $650.2 million, compared with $772.3 million a year earlier. On the asset part of the balance sheet, cash and cash equivalents rose to $115.4 million from $80.6 million a year earlier.

“We effectively managed cash flow and did not borrow on the revolver,” James Skinner, executive vice president and chief financial officer, said of the company’s asset-based revolving credit facility during a conference call after the release of earnings. “We remain very focused on liquidity. We are waiting for the financial markets to be more stable before making any additional debt payments. There are no covenants on our facility and no debt due for two years.”

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