Merger talks between two of the best-known brands in the luxury retail space have run into a serious roadblock. The New York Post reports that talks between Neiman Marcus and Saks Fifth Avenue owner Hudson’s Bay Co. have stalled as the threat of a lawsuit looms over Neiman Marcus.

The hurdle arrives against the backdrop of “a tanking luxury market,” the report notes.

Hudson Bay Co. “has been exploring an unusual deal to buy the company without assuming Neiman’s $4.6 billion in debt,” The Post reports.

The report adds: “But talks between the two have stalled as Neiman’s term loan lenders and bondholders are weighing a suit over Neiman’s decision in March to move its stores in San Antonio and Longview, Texas, and in McLean, Va., into a subsidiary that protects them from creditors in the event of a bankruptcy, sources said.”

The report quotes a source close to the situation saying: “The problems and uncertainties facing Neiman’s are delaying a transaction with HBC. Neiman’s is about to be sued by its lenders for moving assets from the company, and that’s slowed down the transaction.”

The report adds: “Canada-based Hudson’s Bay could purchase up to 49.9 percent of Neiman without triggering clauses that would trip up a ‘change in control’ provision that would put HBC on the hook for the debt.”