May 6 (Bloomberg) -- 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 7.5 basis points to 175 basis points as of 3:46 p.m., according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. That means it would cost the equivalent of $175,000 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 outlets 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.”
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 declined to 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 0.9 basis point to a mid-price of 70.7 basis points as of 4:16 p.m. in New York, according to prices compiled by Bloomberg.
That’s 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.
“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 11.1 basis points to 341.1 basis points, Bloomberg prices show. The gauge of perceived risk for speculative-grade debt is at about the lowest since September 2007, CMA data show.
MBIA Inc. and Bank of America Corp. settled a five-year legal battle over soured mortgage debt in a deal that will pay MBIA the equivalent of $1.7 billion and give the bank a 5 percent stake in the bond insurer.
The bond insurer will drop demands that Bank of America’s Countrywide unit buy back faulty home loans that MBIA guaranteed, while the bank ends a challenge to a 2009 restructuring of the insurer that was intended to jumpstart its business of backing municipal bonds, the two companies said today in separate statements. Bank of America also will provide the MBIA unit that guaranteed the lender’s mortgage debt a $500 million credit line, the firms said.
MBIA swaps fell 512 basis points to a mid-price of 387.5 basis points as of 4:30 p.m. in New York, according to CMA. That means it would cost the equivalent of $387,500 annually to protect $10 million of obligations for five years.
The lending unit of General Motors 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.
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 be sold May 8, the person said.
The average relative yield on speculative-grade, or junk-rated, bonds narrowed 4.4 basis points to 487.8 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.
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