Neiman Marcus Downgraded Deep Into Junk As S&P Forecasts Continued Weakness

Standard & Poor's on Thursday downgraded Neiman Marcus by three notches to CCC-plus from B-minus, moving it deep into junk territory, saying its poor operating performance in recent quarters has weakened its credit metrics. The outlook is negative, meaning the agency could downgrade again in the medium term. "Trends such as weak mall traffic, highly promotional retail apparel environment, and cautious consumer spending continue to weigh heavily on Neiman Marcus' operating performance and EBITDA," said credit analyst Helena Song. "We believe these meaningful industry headwinds, both secular and cyclical, will likely hinder meaningful EBITDA recovery, and as such we project adjusted leverage in the low 10x range and interest coverage in the high-1x area over the coming year." The negative outlook offers a one-in-three chance it could downgrade again over the next year or so, it said. Fitch Ratings said in January that it expects the retail sector to replace oil and gas as the most distressed sector in 2017, forecasting the retail-only default rate will jump to as high as 9% in 2017 from its current 1% trailing 12-month level.