Neiman MarcusShop signs, Los Angeles, America - 04 Apr 2015

The Neiman Marcus Group has reached a preliminary agreement with its lenders on an extension and amendment of its debt maturities.

The agreement, subject to final approval, enhances Neiman’s capital structure and gives the luxury retailer some much-needed breathing room to sustain its operations, which have been hampered by its huge debt load. The $5 billion NMG has $4.6 billion in debt, 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.

Neiman’s has been paying hundreds of millions annually to cover the interest costs on its debt, including $307 million during the most recent fiscal year, ended July 28.

The company revealed the agreement in a filing Friday with the Securities and Exchange Commission.

“It could have been a real mess for Neiman’s if it ever had to default,” said one financial source. “It could also be that the creditors are encouraged by what the new ceo is saying.”

That would be Geoffroy van Raemdonck, who took the helm of the Dallas-based luxury retailer as chief executive officer a year ago. His main agenda is to modernize the business and transform it into a “customer-centric luxury platform.” He has 15 initiatives to strengthen customer relationships, create “seamless” shopping experiences across channels, and to bring “magic” to the stores by reexamining what’s being sold, how it’s sold and by accelerating innovation. He’s also set new financial goals and aims to ramp up the firm’s cash flow to $700 million in earnings before interest, taxes, depreciation and amortization within four or five years, well above the $477 million reported for NMG’s last fiscal year. That would help the retailer keep up with financial obligations in the future, as Neiman’s will still have significant debt load.

No timing on when an agreement could be finalized was given, though news that progress is being made does put a brighter glow on Neiman’s next big move — opening its first New York store on March 15, in Manhattan’s Hudson Yards.

Neiman’s said the proposed deal with lenders involves extending the maturities out three years, though there were no details regarding rates. “For the potential future structure, nothing has been finalized as of yet,” a spokeswoman said.

Neiman’s said in a statement that “the current framework contemplates three-year maturity extensions on the company’s credit facilities and unsecured notes and, if implemented, will provide the company with ample runway to execute on and complete its transformation plan into a customer-centric luxury platform.”

Neiman’s cited its “significant progress in our refinancing discussions” with both creditor groups, which hold a majority of the company’s debt.

The transaction to extend the maturities of the notes and the term loans was reached with an ad hoc committee of lenders holding unsecured senior payment-in-kind toggle notes due 2021 and the unsecured senior cash pay notes due 2021, and another ad hoc committee of holders of term loans, according to the filing.

Negotiations between NMG owners Ares Management and Canada Pension Plan Investment Board and debt holders went full-speed-ahead around mid-February, following on and off talks last year. On Feb. 13, the company made presentations to the note holders and the term lenders. Ares and CPPIB bought NMG from TPG Capital and Warburg Pincus in 2013 for $6 billion, putting the huge debt load on the books.

All of the term lenders, and all but one of the noteholders, have agreed to an extension and the parties are working to document the agreement and implement the transaction, according to the filing. That one noteholder objected to a provision establishing the Neiman Marcus Group LLC as co-issuer of the company’s indebtedness, but is otherwise generally supportive of the company, according to the filing.

There’s been an issue with some creditors regarding Mytheresa, NMG’s Munich-based luxury web and catalogue operation. Last year, a complaint by Marble Ridge Capital was filed in the District Court of Dallas County in Texas, alleging a “fraudulent transfer” of the Mytheresa assets to Ares Management and CPPIB. Marble Ridge complained that an earlier corporate reshuffling put Mytheresa assets beyond the reach of Neiman’s creditors “to hinder and delay creditor recovery.”

Marble Ridge said Friday that Neiman’s, through the agreement, “merely seeks to pressure creditors to forgive the misconduct of the board and turn a blind eye to the sponsors’ self-enrichment scheme. As must be obvious to all concerned, this so-called ‘proposal’ does not have, and we believe will not obtain, the approval necessary to make it effective.” Marble Ridge also demanded that 100 percent of the Mytheresa assets be returned to Neiman Marcus Group, by Ares and CPPIB.

In response, Neiman’s reiterated in a statement to WWD, “The distribution of Mytheresa was expressly permitted by our debt documents.”

Neiman’s also said Mytheresa was offered in support of the agreement. “That does not change the fact that our debt documents expressly permitted the distribution.”

Reorg, a financial and legal analysis firm covering distressed debt and bankruptcies, issued a report on Neiman’s proposed debt agreement that indicated that unsecured noteholders would exchange $250 million in notes at par into $250 million of Mytheresa preferred equity. In addition, the unsecured noteholders would get a package of new securities with potential claims against the value of Mytheresa and with collateral from Neiman’s.

“We’ve seen a lot of these exchanges, but this is one of the more complex term sheets we’ve ever seen,” Nick Williams, senior distressed debt analyst at Reorg, told WWD. “What this deal does for the company is it extends out the maturities of its near-term debt, which is incredibly important.”

Williams pointed out that aspects of the agreement still need to be worked out before it’s finalized, and that those signing on to the agreement would have to agree that Mytheresa is no longer a subsidiary of the issuer of Neiman Marcus debt.

“The [SEC filing] indicates there is one holdout member of the lender group,” Williams said. “But it seems the deal largely accomplishes the company’s goals, though Neiman Marcus will remain highly leveraged.”

Separately, Neiman’s informed its creditors that for its second fiscal quarter ended Jan. 26, it expects to report a 0.5 percent to 1 percent comparable revenue gain, representing the retailer’s sixth-consecutive quarter of comparable revenue increases. Neiman’s results for the holiday period would be consistent with those of other department stores such as Macy’s and Nordstrom, which have reported modest revenue gains.

The Neiman Marcus Group operates Neiman Marcus, Bergdorf Goodman, Neiman Marcus Last Call and Horchow, as well as Mytheresa.

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