IPO Market Could Be a Lifeline for Neiman Marcus, PetSmart
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What is the main topic discussed in this episode?
Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Many retailers have been struggling as of late, and two in particular, Neiman Marcus and PetSmart, are deep in debt to their creditors. But in a moment, we'll explain why the current hot IPO market could help relieve their financial stress. First, these money and market stories you should know. You know anybody with a Ford Explorer? The automaker is recalling about 1.2 million Explorers built between 2011 and 2017, as well as some 2013 F-150s and Econoline vans. A rear suspension fracture is the issue.
What are the urgent financial challenges facing Neiman Marcus and PetSmart?
It'll cost Ford about $180 million to fix. The affected Explorers were built at Ford's Chicago assembly plant, and they include 28,000 sold in Canada. And the Wall Street Journal Business Desk reports that while many corporations and large companies have deployed artificial intelligence in some fashion, it's still out of reach of many small businesses. And much of that has to do with cost. The journal's business team writes the high upfront costs of AI tools, along with the scarcity of people who can implement the technology at individual operations and escalating IT expenses, have widened the gap in AI implementation, But there is some good news. That gap has set a range of players from large technology vendors to startups to coming up with tools that allow small businesses to use the technology without a data scientist on staff.
How could the hot IPO market provide relief to struggling retailers?
Spring brings warmth and sunshine, but for many retailers, it has meant stormy weather on their balance sheets. But the busy IPO season this year could be a bit of sunshine some troubled retailers have been looking for. And Wall Street Journal reporter Soma Biswas is here to discuss. So, Soma, the IPO market may benefit two retailers in particular, Neiman Marcus and PetSmart, but it's properties that they own that are about to be active in the current IPO market that's significant here.
That's right, JR. Neiman Marcus and PetSmart, they own a couple of thriving e-commerce platforms. Neiman Marcus owns MyTeresa, and PetSmart has Chewy.com, which is the biggest online pet products retailer.
We see the boxes everywhere, being delivered to people's apartments and their homes.
Which online properties do Neiman Marcus and PetSmart own and why do they matter?
Exactly, yes.
What is MyTeresa?
MyTeresa is an international online luxury website. So it's the reason why you probably haven't heard of them is that it's all pretty much all of it is outside the US. So it's Europe, Middle East, Asia.
Now, those two properties are going to go to IPO very soon.
How did private-equity moves and asset transfers alarm creditors?
Neiman Marcus and PetSmart need to raise cash to pay their creditors because of a transfer of their stakes in those smaller properties. Can you explain what happened here?
So the reason why these two companies need to sell IPO or sell stakes in PetSmart in the kind of their best businesses, which are these e-commerce platforms, is really because they have a lot of debt. And the fact that they have these really healthy, nice businesses that can raise some cash is a good way to raise cash to pay down some of that debt. Now, what the owners, the private equity firms that own them have done is that they transferred some of the shares that were within these two companies, right? They transferred it to like different shell companies that are controlled more by the private equity firms that own PetSmart and Neiman Marcus. And that was alarming to their creditors, to their bond and loan holders.
And it forced them to come to the negotiating table and try to figure out a deal that would benefit both the private equity firms and the bond and loan holders.
Is this something fairly new, companies being able to write into the terms of their debt that they can essentially strip off some of their assets?
Well, I think it is new in the past, let's say, few years.
Why are aggressive debt terms and asset stripping becoming more common?
I think that companies have been able to be more aggressive with the kind of debt documents that they write when they launch debt offerings. And that's what they've done. And they've become more aggressive about their ability to strip off assets as permitted by their debt documents.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:43
2
What are the urgent financial challenges facing Neiman Marcus and PetSmart?
0:43–1:42
3
How could the hot IPO market provide relief to struggling retailers?
1:42–2:32
4
Which online properties do Neiman Marcus and PetSmart own and why do they matter?
2:32–2:51
5
How did private-equity moves and asset transfers alarm creditors?
2:51–4:18
6
Why are aggressive debt terms and asset stripping becoming more common?
4:18–4:48
7
Could other indebted retailers follow Neiman Marcus and PetSmart as a blueprint?
4:48–6:15
Speakers
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