It’s a tough time to be an apparel and fashion retailer. On top of millions of people people having become jobless, many retail destinations have been deemed non-essential and have been forced to be closed or have voluntarily closed for the time being. And to make matters worse, the luxury economy has come to a crashing halt. This is just not the right economy for Neiman Marcus.

Standard & poor’s has downgraded the corporate credit ratings of The Neiman Marcus Group LLC to ‘CCC-‘ from ‘CCC.’ S&P also downgraded the issue-level rating on its term loan facility due in 2023 to ‘CCC-‘ from ‘CCC+’ and on its second lien notes down to ‘CC’ from ‘CCC.’ The third-lien and unsecured notes were downgraded to ‘C’ from ‘CC’ and the recovery rating on its first-lien debt was revised to ‘3’ from ‘2.’

The company’s store names and online operations cover Neiman Marcus, Bergdorf Goodman, Neiman Marcus Last Call, and Horchow.

While these ratings are not good for any issuer of any sort, the Negative outlook means further credit ratings downgrades are likely. Once companies get their ratings moved below ‘C-‘ they get into default ratings. S&P’s Negative outlook suggests that there is an elevated potential that Neiman Marcus will undertake a restructuring this year, and possibly within the next six-month horizon.

The Wall Street Journal had reported in recent days that Neiman Marcus was among troubled retailers which have been reaching out to creditors to buy more time ahead of looming debt payments. That said, the problems have been ongoing here for some retailers long before the coronavirus showed up.

It was also just in the first half of March that Neiman Marcus launched new growth initiatives, but that was before the wheels came off the economy. Those steps included strengthening its omni-channel efforts, increasing its customer lifetime values, and streamlining the Last Call stores to focus on full-price selling. The company was also said to be reinvesting in its supply chain with planned sales of of two distribution centers in Texas.

By streamlining its Last Call efforts, Neiman Marcus was planning to shut down the majority of its Last Call stores by the first quarter of Fiscal Year 2021.

According to S&P, Neiman Marcus has remains a highly leveraged entity for several years. The ratings agency also warned that the company depends upon favorable market conditions and on strong execution to sustain its capital structure. S&P went as far as to say that the coronavirus and recession put Neiman Marcus’ prospects for a turnaround as increasingly low. The restructuring that was completed last June did not reduce the company’s nominal debt level and S&P continues to see its capital structure as unsustainable.

As for the Negative outlook, S&P sees an elevated risk of a bankruptcy filing or an additional restructuring in the next six months. The ratings agency did outline the potential for an upgrade, but the odds sound low:

We could raise our ratings on Neiman if its performance improves and we see a pathway for it to refinance its onerous capital structure at par. This would include the nearly $138 million of unsecured debt due October 2021.

With the outlook stuck on ‘Negative’ and with the COVID-19 economy set to impact luxury sales and regular sales for months ahead, the upgrade scenario seems rather bleak unless its creditors decide that there would be a better recovery by allowing it to operate rather than taking over its assets and operating costs.

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