Alec Sohmer, Leading Financing Expert, Responds to Neiman Marcus Buyout Financing Deal

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In response to an article published by Reuters, financing expert Alec Sohmer comments on the acquisition financing of Neiman Marcus and its inclusion of a payment-in-kind deal.

Financing expert Alec Sohmer responds to an article published by Reuters, which discusses the acquisition financing deal for Neiman Marcus, a prominent luxury retailer.

According to an article published by Reuters on September 13th titled “Neiman Marcus Buyout Financing to Include PIK Deal,” Neiman Marcus’ buyout deal is expected to incorporate a payment-in-kind (PIK) deal. Amidst planning for its initial public offering, Neiman Marcus agreed to sell to Ares Management and Canadian Pension Plan Investment Fund for $6 billion.

While a few international banks like Credit Suisse and Deutsche Bank have agreed to finance the deal, the article says the “details of the capital structure remain vague.” However, the bond portion of the capital structure will incorporate a PIK toggle. The article says this is the first time a PIK has been used in a leveraged buyout since the financial crisis.

Alec Sohmer, a financing specialist and managing director at Plymouth Rock Capital, says including a PIK deal into the acquisition financing can be somewhat risky. “The PIK toggle here allows the new Neiman Marcus owners to either pay interest in cash or add it to the principal. Typically, PIK deals were used in the past to give smaller, less lucrative companies more debt flexibility or because the financers were concerned about the business’s ability pay the interest.”

Sohmer cautions that including a PIK deal into the acquisition financing might not be the best decision due to Neiman Marcus’ previous debt history. “Over a decade ago, Neiman was bought out and agreed to a similar deal,” he says. “However, it only made matters worse and the company accrued more debt. While it temporarily helped the company through hard times, Neiman Marcus still owed a large sum. It remains to be seen whether this new proposal will generate the desired result.”

Alec Sohmer, a strategic financing leader and co-founder of Plymouth Rock Capital, has 20 years of Board-level experience. He has served in many interim management positions for businesses requiring significant turnaround or restructuring. He is able to increase revenue streams by utilizing a variety of line management techniques. In his two decades of experience, he has dramatically increased revenues of businesses by identifying untapped markets.

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since: 08/2013
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