Neiman Marcus Swaps Rise as Owners Mull Exit; GM Selling Bonds

The cost to protect against a default by Neiman Marcus Group Inc. increased as private-equity firms TPG Capital and Warburg Pincus LLC consider a sale or public offering of the luxury retailer.

Five-year credit-default swaps tied to Neiman Marcus debt rose 11.5 basis points to 179 basis points at 11:30 a.m., according to data provider CMA, which is owned by McGraw Hill Financial and compiles prices quoted by dealers in the privately negotiated market. That means it would cost the equivalent of $179,000 annually to protect $10 million of obligations for five years.

The private-equity firms, which bought Dallas-based Neiman Marcus in 2005 for $5.1 billion, have interviewed banks and are close to hiring Credit Suisse Group AG to run the dual-track process, said the people, who asked not to be named because the process is private. The owners may seek about $8 billion for the company, which has about 40 namesake department stores and owns Bergdorf Goodman’s two stores in New York.

If TPG and Warburg don’t find a buyer and demand for an IPO is weak, they may consider a dividend recapitalization, one of the people said.

“Two out of three of those options are negative for bondholders,” said Marc Gross, a money manager at RS Investments in New York who oversees $3.5 billion in debt funds, including Neiman Marcus loans. “They’ve owned this for a long time, so it’s about time that they cash out in a meaningful manner. You have to put yourself in the equity sponsor’s shoes, and they’re going to do what makes the most money for them.”

Five-Year Low

Swaps tied to Neiman Marcus debt had declined 110.5 basis points this year through May 3.

A gauge of U.S. corporate credit risk held at its lowest level in more than five years.

The Markit CDX North American Investment Grade Index, a credit-swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, fell 0.6 basis point to a mid-price of 71 basis points at 1 p.m. in New York, according to prices compiled by Bloomberg.

The measure is poised to close at the lowest level since Nov. 6, 2007, when the index reached 68.8 basis points. The gauge fell 6.6 basis points last week, its biggest decline since the period ended Jan. 4.

Market ‘Breather’

“Spreads have gotten to a point where we prefer to sit back and let the market take a little bit of a breather,” Mitchell Stapley, chief investment officer of Fifth Third Asset Management in Grand Rapids, Michigan, said in a telephone interview. “You could see spreads stay at these levels, and it could become a frustrating period for portfolio managers looking for yield.”

The credit-swaps index typically falls as investor confidence improves and rises as it deteriorates. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The risk premium on the Markit CDX North American High Yield Index fell 5.3 basis points to 346.8 basis points, Bloomberg prices show. The gauge of perceived risk for speculative-grade debt is about the lowest since September 2007, CMA data show.

The lending unit of General Motors (GM) Co., the largest U.S. automaker, plans to sell $2 billion of bonds to help fund its purchase of Ally Financial Inc.’s international operations and to repay debt.

GM Offering

General Motors Financial intends to issue senior notes due in three, five and 10 years, according to a person familiar with the offering who asked not to be identified because terms aren’t set. Proceeds will be used to finance a portion of its $4.2 billion deal for Ally’s operations in Europe and Latin America, to repay an inter-company loan and to fund working capital, the company said today in a regulatory filing. The new debt may price May 8, the person said.

The average relative yield on speculative-grade, or junk- rated, bonds narrowed 3.6 basis points to 488.6 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.

To contact the reporter on this story: Victoria Stilwell in New York at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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