Neiman Marcus Is Discussing Debt Overhaul With Lender Groups
(Bloomberg) -- Neiman Marcus Group Ltd, the luxury retailer facing a $2.8 billion loan coming due in two years, has started talking to groups of creditors about reworking its borrowings to give it more breathing room, according to people with knowledge of the matter.
Advisers for groups of bondholders and lenders are talking to the company about options including giving the retailer more time to pay back its loan. In exchange, they would change Neiman Marcus’s credit agreement to give creditors more power if the company’s fortunes deteriorate too much, said the people who asked not to be identified because discussions are private. They’re also discussing a possible bond exchange.
The latest discussions heated up soon after Neiman Marcus irked creditors by moving its MyTheresa online retail business -- one of its most promising assets with an estimated value of $500 million -- into an entity that’s outside investors’ reach. One investor said the move may have violated the terms of the company’s debt, amounting to a default. A spokesman for Neiman Marcus said the shift was allowed under credit documents, and the company isn’t in default.
The bond exchange would swap Neiman bonds coming due in October 2021, about a year after the term loan, for new bonds, the people said. As part of the swap, creditors would look for additional collateral from assets including MyTheresa, two of the people said.
Neiman Marcus’s revenue has held steady in recent years even as competitors have suffered from online competition. But the company has a relatively high debt load after leveraged buyout transactions including its sale to Ares and Canada Pension Plan Investment Board in 2013. The company, which also owns Bergdorf Goodman, now has around $4.7 billion of debt.
Discussions are preliminary and it may be that no agreement materializes. There haven’t been formal proposals shown to creditors yet, meaning the investors are “unrestricted” and can trade the loans and bonds as they wish. The spokesman for Neiman Marcus declined to comment on debt negotiations.
Advisers are next expected to suggest different possibilities to deal with maturing obligations and rein in debt levels, another person said. Among the negotiating topics are the company’s level of net operating losses, an asset that can reduce future tax bills, according to the person, who also asked not to be identified because the discussions are private.
Apart from the two groups, one holder of Neiman bonds and loans, Marble Ridge Capital LP, has sent letters to the company’s board suggesting the sale of MyTheresa real estate. Such a deal could generate “billions of dollars” that could be used to put the company on more solid footing, according to the letter seen by Bloomberg.
That money manager also questioned whether shifting the MyTheresa unit amounted to a fraudulent transfer of assets away from creditors. The spokesman for Neiman said the “organizational change is consistent with how we have operated MyTheresa as an independent entity,” which will “allow both companies to grow and succeed.”
The company was talking to creditors last year about restructuring debt, and conversations resumed at the end of September after Neiman Marcus posted a quarterly earnings report that also discussed shifting the MyTheresa unit to just underneath the corporation’s ultimate parent, leaving it out of the reach of debt investors. That move has proved to be a sticking point in negotiations with investors.
Neiman Marcus hired law firm Kirkland & Ellis LLP and Lazard Ltd as investment banker last year. A group of investors holding both first-lien bank loans and bonds is working with Wachtell Lipton Rosen & Katz and Ducera Partners LLC, while a separate ad hoc group of money managers with term loans, pay-in-kind notes and regular bonds is working with Paul Weiss Rifkind Wharton & Garrison LLP and Houlihan Lokey, the people said. Marble Ridge is working with Brown Rudnick.
Representatives for Ducera, Houlihan, Kirkland, Lazard, Marble Ridge and Wachtell declined to comment. Brown Rudnick and Paul Weiss didn’t immediately return requests for comment.
Neiman Marcus is the latest retailer to be caught in allegations that a transfer unfairly deprived creditors of claims on assets in the event that a borrower needs to restructure. PetSmart Inc. and J. Crew were pioneers of such moves, which complicate restructuring talks.
“We do not expect this updated corporate structure to meaningfully impact operations for either NMG or MyTheresa,” a representative for Dallas-based Neiman said in a statement at the time of the transfer. Neiman acquired MyTheresa four years ago for $238 million including future earnings.
Neiman Marcus reported a revenue increase of 2.3% to $1.13 billion for its fiscal fourth quarter compared with the same period a year earlier. Adjusted earnings before interest taxes and depreciation, known as Ebitda, also rose to $56.1 million compared with $48.2 million a year earlier.
©2018 Bloomberg L.P.