Leveraged finance innovation of the year: $700 million PIK notes to part finance Neiman Marcus LBO
LBO sponsors found a way to increase flexibility in the capital structure and pay top price for the US retailer.
|At a glance:
Deal type: 9%/9.75% $700 million notes due 2015, part of the financing of the $5.1 billion buyout of Neiman Marcus
Bookrunners: Credit Suisse, Bank of America,
Deutsche Bank, Goldman Sachs
Date: October 2005
When Texas Pacific Group and Warburg Pincus started bidding for luxury US retailer Neiman Marcus in 2005, they were up against several other private equity consortia. In order to nail the deal last May, the two agreed to pay $5.1 billion for the company, a 25% premium to Neiman Marcus’s share price before it was announced that the company was for sale.
With that sort of a price tag, the sponsors wanted to find a way to decrease the debt service burden in case of a downturn in the cyclical retail business. Leverage on the deal, at 6.2 times 2005 pro-forma adjusted ebitda, had already easily been topped in leveraged buyouts, but it was still pretty hefty by 2005 standards. In a downturn, however, it would be a lot more painful.
Credit Suisse, which was financial adviser to the sponsors, was commissioned to make the capital structure of the new company as flexible as possible.