Neiman Marcus 2009 Annual Report Download - page 15

Table of Contents
The terms of existing or future debt instruments may restrict NMG from adopting some of these alternatives. In addition, our
borrowing costs and ability to refinance may be affected by short-term and long-term debt ratings assigned by independent rating
agencies, which are based, in significant part, on NMG's performance as measured by indicators such as interest coverage and
leverage ratios. Furthermore, any failure to make payments of interest and principal on NMG's outstanding indebtedness on a timely
basis would likely result in a reduction of NMG's credit rating, which could harm its ability to incur additional indebtedness on
acceptable terms.
Contractual limitations on NMG's ability to execute any necessary alternative financing plans could exacerbate the effects of
any failure to generate sufficient cash flow to satisfy its debt service obligations. The Asset-Based Revolving Credit Facility permits
NMG to borrow up to $600.0 million; however, NMG's ability to borrow and obtain letters of credit (including amendments, renewals
and extensions of letters of credit) thereunder is limited by a borrowing base, which at any time will equal the sum of (a) the lesser of
(i) 80% of eligible inventory (valued at the lower of cost or market value) and (ii) 85% of the net orderly liquidation value of eligible
inventory, and (b) 85% of the amounts owed by credit card processors to the borrowers under the Asset-Based Revolving Credit
Facility in respect of eligible credit card accounts constituting proceeds arising from the sale or disposition of inventory, less certain
reserves. In addition, if at any time the aggregate amount of outstanding revolving loans and incremental term loans, unreimbursed
letter of credit drawings and undrawn letters of credit under the Asset-Based Revolving Credit Facility exceeds the reported value of
inventory as calculated under that facility, NMG will be required to eliminate such excess. Further, if (a) the amount available under
the Asset-Based Revolving Credit Facility is less than the greater of (i) 20% of the lesser of (A) the aggregate revolving commitments
and (B) the borrowing base and (ii) $75 million or (b) an event of default has occurred, NMG will be required to repay outstanding
loans and cash collateralize letters of credit. In addition, under the terms of the Asset-Based Revolving Credit Facility, through
April 30, 2011 NMG is required to maintain excess availability of at least the greater of (a) 10% of the lesser of (i) the aggregate
revolving commitments and (ii) the borrowing base and (b) $50 million. After April 30, 2011, if at any time, excess availability is less
than the greater of (a) 15% of the lesser of (i) the aggregate revolving commitments and (ii) the borrowing base and (b) $60 million,
NMG will be required to maintain a pro forma ratio of consolidated EBITDA to consolidated Fixed Charges (as such terms are
defined in the credit agreement) of at least 1.1 to 1.0. Our ability to meet the conditions described in this paragraph may be affected
by events beyond our control.
NMG's inability to generate sufficient cash flow to satisfy its debt service obligations, or to refinance its obligations at all or
on commercially reasonable terms, would have an adverse effect, which could be material, on NMG's business, financial condition
and results of operations.
The terms of NMG's Asset-Based Revolving Credit Facility and Senior Secured Term Loan Facilityand the indentures
governing the Senior Notes, the Senior Subordinated Notes and the 2028 Debentures may restrict NMG's current and future
operations, particularly its ability to respond to changes in its business or to take certain actions.
The credit agreements governing NMG's Asset-Based Revolving Credit Facility and Senior Secured Term Loan Facility and
the indentures governing the Senior Notes, the Senior Subordinated Notes and the 2028 Debentures contain, and any future
indebtedness of NMG would likely contain, a number of restrictive covenants that impose significant operating and financial
restrictions, including restrictions on NMG's ability to engage in acts that may be in its best long-term interests. The indentures
governing the Senior Notes, the Senior Subordinated Notes and the 2028 Debentures and the credit agreements governing the senior
secured credit facilities include covenants that, among other things, restrict NMG's ability to:
• incur additional indebtedness;
• pay dividends on NMG's capital stock or redeem, repurchase or retire its capital stock or indebtedness;
• make investments;
• create restrictions on the payment of dividends or other amounts to NMG from NMG's restricted subsidiaries;
• engage in transactions with its affiliates;
• sell assets, including capital stock of NMG's subsidiaries;
• consolidate or merge;
• create liens; and
• enter into sale and lease back transactions.
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