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Report: Neiman’s Debt Could be a Deal Breaker for HBC

Hudson’s Bay Company is trying to figure out how to acquire Neiman Marcus Group without taking on all of the U.S.-based retailer’s debt.

CNBC is reporting on well-placed unnamed sources who say HBC has brought on Evercore Partners Inc., a debt restructuring adviser, to help it sift through its options.

HBC first made overtures toward the Neiman Marcus chain, which also operates Bergdorf Goodman, in March. But the sources are saying Neiman’s almost $5 billion in debt is a hindrance to closing a deal.

HBC reportedly already has $2.4 billion in debt of its own, which makes taking on all of NMG’s debt undesirable. But a transaction for Neimans that would reduce the amount that investment firms like Oaktree Capital Group LLC and GSO Capital Partners are repaid could be a tough sell.

The publication highlights another challenge: making a deal with Neiman’s owners, Ares Management LP and the Canada Pension Plan Investment Board, which purchased the retailer for $6 billion, including debt.

Since Neimans’ debt doesn’t mature until 2020, giving the owners time to boost business, they have no incentive to bargain. Sources say some sort of payout might be necessary. That would not sit will with investors who are asked to take a haircut, however.

HBC has another option: taking less than a 51 percent stake in the company, which would alleviate its responsibility for Neiman’s debt. But it wouldn’t position the Canadian company to benefit from the relationship like ownership would.

For these reasons, the article states, a deal for Neimans may not happen. If talks stall, this will be the second failed play for an American retail chain for HBC, which had been in talks with Macy’s.

This update comes after the New York Post last week reported that Neiman Marcus’ decision to establish separate subsidiaries for specific real estate holdings has its term loan lenders and bondholders on the brink of filing a lawsuit.