Neiman Marcus Group Inc. says it may pay interest on certain of its debt by issuing new paper instead of shelling out cash.
The upscale retailer said it may elect to use this payment method, known as pay-in-kind (PIK), for any interest payment on in its 9-percent/9-3/4-percent senior notes due 2015.
Companies typically do this to preserve cash. Investors, however, are not generally happy with this arrangement because it does not guarantee they will ever see real money.
Neiman Marcus says that it had negotiated for the right to include the PIK feature as a tool to enhance liquidity under certain circumstances. “Given the dislocation in the financial markets and the uncertainty as to when reasonable conditions will return, NMG believes that conditions are appropriate to utilize this feature,” it said in a regulatory filing.
The company said that earlier this week it notified Wells Fargo Bank N.A., trustee under the senior indenture governing the PIK notes, that for the payment period beginning on Jan. 15 it would “make such interest payment by paying in kind at the PIK interest rate of 9-3/4 percent instead of paying interest in cash.” Before the beginning of each eligible interest period in the future, the company said, it would “evaluate whether to continue utilizing this PIK feature, taking into account market conditions and other relevant factors at that time.”
It did concede, however, that it currently has $576.3 million of unused borrowing available under its $600 million revolving credit facility. Even so, it has elected to pay PIK interest for the interest period from Jan. 15 through April 14.
In any case, Neiman Marcus will save a little more than $15 million a quarter using the PIK feature, according to Standard & Poor’s Ratings Services.
Reuters, meanwhile, reported that Neiman plans to cut 375 jobs, citing spokeswoman Ginger Reeder.