Neiman Marcus Creditor Steps up Attack on MyTheresa Transfer Plan

NEW YORK, United States — Neiman Marcus is once again feeling the heat. On Monday, one of its creditors — distressed debt investor Marble Ridge Capital — delivered an urgent letter to to the department store group's board of directors, calling the company's plan to transfer ownership of e-commerce venture MyTheresa "corrosive conduct."

Marble Ridge claimed handing MyTheresa over to private equity firm Ares Management and the Canada Pension Plan Investment Board would prevent creditors from using the asset as collateral and called it a "self-serving enrichment scheme."

MyTheresa, a Munich-based luxury online retailer that Neiman Marcus acquired in 2014, is at the centre of negotiations to restructure the department store operator’s debt. The fast-growing site is a valuable prize for creditors, who are owed $4.7 billion in loans, more than half of which comes due in 2020. Credit rating service Moody’s has Neiman Marcus debt rated deep in junk territory.

The transfer to new ownership, which would effectively block creditors from making claims on the asset, was initiated in September to insulate MyTheresa in the event of a bankruptcy, according to a person familiar with the matter.

“The pervasive conflicts of interest that enabled these valuable assets to be improperly stripped for no consideration must be resolved,” wrote Daniel Kamensky, managing partner of Marble Ridge.

Neiman Marcus declined to comment on the letter.

“The letter today shows that, clearly, Neiman is in a corner,” said David Tawil, president of Maglan Capital, a distress-focused hedge fund uninvolved in the conflict. “If this does go to court, then it will likely result in a bankruptcy. Unfortunately for everyone else involved in the process, a bankruptcy may be the cleanest way to get this resolved.”

Neiman's debt stems from its acquisition by Ares and CPPIB in a $6 billion leveraged buyout in 2013. Private equity firms snapped up struggling retailers over the last 15 years, only to see their turnaround plans run into trouble in the face of growing online competition and declining store traffic. Toys 'R' Us, acquired in 2005 by Bain Capital, KKR & Co. and Vornado Realty Trust, shut down earlier this year, while J.Crew, bought by TPG Capital and Leonard Green & Partners in 2011, narrowly avoided bankruptcy in 2017 and is being governed by committee after its chief executive suddenly stepped down last month.

Neiman Marcus has explored multiple solutions to lessen its debt load in recent years, including talks with Saks Fifth Avenue parent Hudson’s Bay Company to merge with the New York-based department store, which were terminated last year. It also withdrew plans for an initial public offering in early 2017. In October, Moody’s downgraded the company’s corporate family rating from Caa2 to Caa3.

Marble Ridge owns 8.75 percent in senior notes and term loans for Neiman Marcus. The firm first disputed the MyTheresa transfer in September. The company was reportedly in talks with bondholders in the following months, but Marble Ridge said these discussions were not in good faith, according to a source close to the company.

According to the source close to Marble Ridge, the debtor is willing to take the matter to state court, which could then appoint a third-party trustee to handle the asset. This is not the same as bankruptcy, however. A Chapter 11 filing would benefit bondholders because they will be able to fall back on the value of MyTheresa and Neiman Marcus’ other assets, such as real estate, but the goal for Marble Ridge is to have MyTheresa back to Neiman Marcus and reach a consensual agreement among all creditors around restructuring, the source added.

Based in Dallas, Neiman Marcus Group owns a namesake chain, Bergdorf Goodman and Neiman Marcus Last Call outlet stores. In its latest earnings report, it posted a net loss of $75.3 million for the fourth quarter of fiscal year 2018 on sales of $1.1 billion.

"We are executing on a compelling growth plan and pleased to recently deliver our fourth consecutive quarter of positive sales growth," the company said in an email statement. "We ended the most recent quarter with approximately $800 million in liquidity and we have ample runway to refinance our debt with no near-term maturities."

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