Ares Management and the Canada Pension Plan Investment Board are paying more than $6 billion for Neiman Marcus, but the private equity firms are only putting in $1.6 billion, according to an SEC filing.
That’s roughly 25 percent of the $6.375 billion purchase price. With the sale to Ares and CPPIB, Neiman Marcus’ debt will jump by about 70 percent to $4.6 billion, Moody Investors Service said. The $4.6 billion in debt includes $600 million in PIK toggle notes, $960 million in cash and a $2.95 billion term loan.
Ares and CPPIB’s 25 percent equity contribution is “a touch low,” one PE executive said. The sponsors are “probably putting in very subordinated debt, so it acts as a cushion for banks,” the source said.
Ares/CPPIB’s equity contribution for Neiman may be low, but it’s not the lowest of 2013. Bain Capital and Golden Gate Capital led an investor group to buy BMC Software earlier this year. The sponsors put in only $1.25 billion of equity for BMC, which is roughly 14 percent of the $8.7 billion needed to complete the deal, peHUB has reported.
The investor group used $1.4 billion in cash from BMC’s balance sheet to fund the deal which brings the equity contribution to $2.65 billion, or roughly 30%.
More positive macro-economic conditions and a dearth of M&A has allowed PE firms to drive more advantageous terms on their deals, Reuters has reported. Sponsors right now are providing roughly 28 to 30 percent equity for deals. This is a far cry from the 50 percent typically called for in 2010, Reuters said.
Neiman’s high leverage caused Moody’s to downgrade the retailer’s corporate family rating to ‘B3’ from ‘B2.’ “Moody’s expects that NMG will not be able to materially reduce its debt levels over the next eighteen months, resulting in debt to EBITDA remaining above 7.0 times,” Moody’s said in an Oct. 7 ratings action.
CPPIB declined comment. Ares and Neimans did not return calls/messages for comment.
Photo courtesy of Neiman Marcus.