Debt laden Neiman Marcus says exploring options, including sale

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Luxury fashion retailer Neiman Marcus Group said on Tuesday that it was exploring options, including changes to its capital structure or a sale, as it seeks relief from a swelling debt load amid renewed buyout interest from Hudson's Bay Co (HBC. TO). The announcement follows a Reuters report earlier this month that the company had turned to investment bank Lazard Ltd (LAZ. N) to explore ways to bolster its balance sheet. Neiman Marcus has total liabilities of $6.4 billion, including $1.2 billion of deferred income taxes. Hudson's Bay, owner of the Lord & Taylor and Saks Fifth Avenue retail chains, is in exploratory talks to acquire Neiman Marcus, people familiar with the matter said. It last considered acquiring Neiman Marcus in 2013, sources said at the time. Hudson's Bay's interest comes as the retail sector faces headwinds that have dented the company's own sales and made it difficult to line up equity financing for a bid for department store operator Macy's Inc (M. N), sources had told Reuters. With Neiman Marcus' bonds trading at about half their par value, a sale of the company would likely require creditors accepting a steep haircut on their holdings, making an acquisition challenging to structure and pull off, especially for Hudson's Bay, which has market capitalization of C$2.1 billion ($1.6 billion) and net debt of $4.5 billion. Hudson's Bay and Neiman Marcus declined to comment. Hudson's Bay, Neiman Marcus and Macy's are under pressure to offer discounts to entice shoppers who increasingly prefer the prices and convenience of internet retailers.

Dallas-based Neiman Marcus' woes have been exacerbated as affluent Texans have cut back on shopping because of a drop in energy prices, while a stronger U.S. dollar has restrained spending at Bergdorf Goodman department store, a popular New York tourist destination that is owned by Neiman. The Wall Street Journal reported earlier on Tuesday that Hudson's Bay was seeking a deal that would give it control of Neiman without having to assume its debt. It did not provide details as to how this can be achieved without at least partially compensating creditors. Neiman Marcus also said that it made changes to its corporate structure, including naming subsidiary online store My Theresa and some of its properties in Virginia and Texas "unrestricted," meaning not subject to the same rules under credit agreements as other units of the company.

However, experts said this was aimed more at helping the company better manage its debt liabilities."They want to increase flexibility to deal with creditors," said Anthony Canale, head of high yield research at research firm Covenant Review LLC. "They want a bargaining chip." The company wrote down the value of the Neiman Marcus brand by $153.8 million, after having reduced it by $466.2 million last September. It also reported a net loss of $117 million for the 13 weeks ended Jan. 28, compared with year-earlier net earnings of $7.9 million, which it blamed in part on an inventory management system that failed to work properly, leaving it unable to fill orders. REAL ESTATE USED AS FINANCING

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