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Moody's points to Neiman Marcus sale and changes retailer's outlook

Photo shows a shopper entering a Neiman Marcus store

Photo: Scott Olson/Getty Images

Moody's changed its outlook on Neiman Marcus Group on Monday to stable from positive, while citing the owners' desire to sell.

Why it matters: The group's former lenders are poised to exit more than three years after taking ownership in bankruptcy via a debt-for-equity swap.

Of note: Neiman Marcus Group has worked with JPMorgan since retaining it two years ago to advise on its deal with Farfetch.

Catch up quick: The retailer fielded offers last fall, rejecting two from HBC-owned Saks, the last consisting of $2.1 billion in cash and between $500 million and $1 billion in subordinated debt.

  • Though the company was not running a formal auction process because market conditions were not ideal at the time, the buyer interest it generated gave it confidence in its exit options.
  • Sources have posited the luxury group, which includes Bergdorf Goodman, could start a process early this year following the end of the holiday season.

What they're saying: Moody's cautioned that the company "could pursue aggressive financial strategies" as it pursues a sale.

  • A source familiar with the situation posited that the rating agency's report could be in part a reaction to media coverage.

By the numbers: Leverage at NMG spiked to over 8x EBITDA for the fiscal year ended Oct. 28, but could decline to 4.5x over the next 12 months, Moody's said.

  • NMG also has good liquidity with no near-term maturities and an undrawn $900 million revolver, per the rating agency.
  • Plus, it is expected to be moderately free cash flow positive this year.

Zoom out: The challenge with department stores generally — whether it is NMG, HBC, Macy's, or even Kohl's — is the decline has not stopped, says a private equity source.

  • "The majority of them have something going on right now, and all for different reasons," the source says.
  • "But they've also all been targeted multiple times over the past several years."
  • "Somebody has to have a view that multi-brand retail has the right to exist," the source says, and that the model is capable of attracting the next generation of consumers.

The bottom line: Until the category stabilizes and there is a clearer view of who will be left standing, it's a difficult bet to make, the source adds.

NMG, HBC, PIMCO, JPMorgan, and Davidson Kempner declined to comment. Sixth Street did not immediately respond to a request for comment.

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