Neiman Marcus Inc. got a thumbs-up from one ratings agency Thursday, while Barneys New York Inc. received a less flattering assessment from another.
This story first appeared in the June 11, 2010 issue of WWD. Subscribe Today.
Moody’s Investors Service upgraded Neiman’s corporate family rating to “B3” from “Caa1” based on a “solid recovery in credit metrics,” while Standard & Poor’s Ratings Service took Barneys off CreditWatch without changing its “CCC” rating.
However, S&P lowered its issue-level rating on Barneys to “CCC-minus” from “CCC” and lowered its recovery rating to 5 from 3 “based on our view that the company’s valuation has diminished over the past few years.” Barneys was placed on CreditWatch with positive implications on April 22.
“The negative rating outlook reflects our concern that Barneys’ capital structure is unsustainable and that some sort of restructuring is a likely outcome,” wrote S&P credit analyst David Kuntz. He cited the store’s “weak liquidity position, participation in the narrow luxury segment, small store base, absence of a chief executive officer since mid-2008, highly leveraged capital structure and thin cash flow protection measures” in his research note explaining the action.
At S&P, “CCC” signifies that obligations are “vulnerable to nonpayment.”
The Moody’s action on Neiman’s follows the luxury retailer’s disclosure Tuesday of third-quarter results that included a return to profitability, a 10.5 percent increase in sales and a 170-basis-point leap in gross margin. The move lifts the Dallas-based firm’s credit rating to the low end of the family considered “subject to high credit risk” from the high end of the group “judged to be of poor standing and…subject to very high credit risk.”
In her note on Neiman’s, Moody’s debt analyst Maggie Taylor cautioned the company continues to face daunting challenges, including high debt levels — long-term debt stood at $2.97 billion on May 1 — and a “luxury goods market…constrained by tighter consumer credit” and unlikely to return to its prerecession state.
But the store’s “good liquidity, solid competitive position in the luxury market and solid execution ability” weighed in its favor.
Moody’s also raised the speculative grade liquidity rating on Neiman’s to 1 from 2 based on expectations the company would maintain its “healthy cash balances and a sizable undrawn revolving credit facility.” Neiman’s cash and cash equivalents more than doubled in the 12 months trailing the end of the third quarter, to $513.3 million from $229.4 million a year earlier.