Neiman Marcus Joins Borrowers Tapping Rally to Extend Loans at Higher Rate

Neiman Marcus Group Inc., the luxury retailer owned by private-equity firms, is offering to pay lenders more interest to extend maturities by three years on a term loan as it works to refinance $2.88 billion of debt.

The company is proposing to increase the interest rate by 1.25 percentage points to 3.25 percentage points more than the London interbank offered rate, according to a person familiar with the negotiations. Lenders would also get a 0.1 percent fee.

Neiman Marcus joins Community Health Systems Inc., the second-biggest U.S. hospital operator, and private-equity owned Univision Communications Inc. and Travelport Ltd. in tapping demand for leveraged loans to gain more time to repay debt, according to data compiled by Bloomberg. Junk-rated borrowers repaid or extended due dates this year on $95.6 billion of loans maturing through 2014, when the so-called maturity wall peaks at $324.5 billion, Bank of America Merrill Lynch data show.

“The fact that the loan market has reopened, and a modest restoration of optimism for the luxury retail market, allows them to get this done,” said James Goldstein, an analyst at research firm CreditSights Inc. in New York. “If you look at the expiration date of the term loan, obviously they weren’t going to be able to generate enough organic free cash flow to pay down the debt.”

Credit Suisse Group AG and JPMorgan Chase & Co. are arranging an amendment that will extend some or all of Neiman Marcus’s term loans and allow the retailer to issue more debt to refinance non-extended loans, the Dallas-based company said today in a statement.

Libor Floor

The banks scheduled a lender call at 2:30 p.m. in New York, the person familiar with the amendment said.

Neiman Marcus should offer more for the amendment, Thomas Ferguson, an analyst for high-yield research firm KDP Investment Advisors Inc., wrote in a report today ahead of the call. The company should include a floor on Libor, the rate banks charge to lend to each other, he said.

The amendment should also add soft-call protection of 101 cents, Ferguson said, meaning that the company would have to pay a premium of 1 cent to refinance the debt in its first year.

Chief Financial Officer James Skinner and Treasurer Stacie Shirley didn’t return telephone messages left at their offices. Warburg Pincus LLC and TPG Capital bought Neiman Marcus for $5 billion in 2005, according to Bloomberg data.

‘Plenty More’ Deals

Neiman Marcus’s $1.98 billion term loan maturing April 2013, with $1.51 billion outstanding, rose 0.875 cent to 99 cents on the dollar on the amendment news today, according to three people familiar with the trades, who declined to be identified because the transactions are private. The S&P/LSTA US Leveraged Loan 100 Index gained 8.04 percent this year.

“The robust new-issue market and a healthy investor base that’s happy to consider amend-to-extend transactions have given existing issuers the opportunity to address their financing needs now,” said Leland Hart, portfolio manager at New York- based BlackRock Inc., which manages more than $20 billion in leveraged-finance assets. “There are plenty more of these deals to come given the amount of debt placed during 2005 and 2007.”

High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.

To contact the reporters on this story: Emre Peker in New York at epeker2@bloomberg.net; Krista Giovacco in New York at kgiovacco1@bloomberg.net.

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net.

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