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Neiman Marcus Bankruptcy a Black Eye for One of Luxury’s Leaders

After weeks of speculation, one of luxury’s leaders has been stung by a bankruptcy filing brought on in part by a coronavirus-induced unraveling.

The Neiman Marcus Group has forged a restructuring agreement with the bulk of its creditors, and will implement the plan through a Chapter 11 filing bankruptcy on Thursday.

The upscale department store company filed the pre-packaged bankruptcy petition in a bankruptcy court in the Southern District of Texas. As part of the restructuring agreement, the luxury retailer has secured a $675 million debtor-in-possession financing facility from creditors. Neiman said the binding agreement has the support of holders representing over two-thirds of its outstanding debt and represents “broad commitment across credit classes.”

The agreement allows Neiman to undergo a financial restructuring to “substantially” reduce its debt load and interest payments, as well as support continued operations during the coronavirus pandemic, the company said. Terms of the restructuring agreement will allow Neiman to eliminate $4 billion of its existing debt. In addition, the creditors have committed to providing a $750 million exit financing package upon the retailer’s emergence from bankruptcy.

“Prior to COVID-19, Neiman Marcus Group was making solid progress on our journey to long-term profitable and sustainable growth…. However, like most businesses today, we are facing unprecedented disruption caused by the COVID-19 pandemic, which has placed inexorable pressure on our business,” Geoffroy van Raemdonck, chairman and CEO, said.

Prior to the coronavirus outbreak, Neiman was able to grow its luxury customer base, expand customer-relationships, achieve higher omnichannel penetration and make “meaningful” strides on the journey to becoming consumers’ go-to luxury platform.

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“The binding agreement from our creditors gives up additional liquidity to operate the business during the pandemic and the financial flexibility to accelerate our transformation. We will emerge a far stronger company. In a world that is changing, we are uniquely positioned to give our brand partners access to our loyal luxury customers like no other company. We will deliver that through the strength of our associate relationships and digital solutions,” van Raemdonck said.

Some Neiman Marcus, Bergdorf Goodman and Last Call stores have extended their temporary shutdowns through May 31. Shoppers can still shop on Neiman’s and Bergdorf’s e-commerce platforms, while associates and style advisors are available digitally as well. Previously announced furloughs and temporary salary reductions are set to continue through at least May 31, and will be revisited based on coronavirus developments.

The company has so far reopened a total of 10 stores nationwide for curbside pickup, including all Texas Neiman Marcus stores, as well as its Las Vegas, Tampa, Fla., and Tysons Corner, Va., doors. Starting this past Monday, Neiman Marcus stores in Atlanta and NorthPark, Texas, became available to customers by private appointment.

“The company will continue to assess store closure decisions and will reopen stores as it is safe to do so based on the status of the pandemic. The Chapter 11 process will not impact the timing of store re-openings,” Neiman said.

The Chapter 11 petition filed with the bankruptcy court in Houston listed both estimated assets and liabilities each at between $1 billion to $10 billion. Twenty-three affiliated companies also filed petitions on Thursday. All 24 cases will be jointly administered.

The petition listed UMB Bank N.A., New York, N.Y., as the top unsecured creditor, holding senior two notes valued at $80.7 million and $56.6 million.

The top 10 unsecured trade claims held by fashion firms read like a who’s who of luxury: Chanel Inc., Piscataway, N.J., $6.0 million; Veronica Beard, New York, N.Y., $4.3 million; Gucci America, Secaucus, N.J., $3.2 million; Dolce & Gabbana, Secaucus, N.J., $2.7 million; Stuart Weitzman Inc., Fort Lauderdale, Fla., $2.6 million; Theory LLC, Lyndhurst, N.J., $2.5 million; Christian Louboutin, New York, N.Y., $2.3 million; Yves Saint Laurent, Secaucus, N.J., $2.2 million; Burberry USA, New York, N.Y., $2.0 million, and Akris Pret A Porter, New York, N.Y., $1.8 million.

Neiman employs 13,201, according to bankruptcy court documents, with 9,545 full-timers and 3,656 part-time staff. On April 5, the luxury chain furloughed 11,282 full- and part-time workers amid increasing bottom-line pressure from dwindling revenue from virus-related store closures. The balance of 2,208 employees still on the payroll fill out the company’s limited business operations, such as filling online orders.

Luxury department store retailer Neiman Marcus will eliminate $4 billion in debt through Chapter 11 bankruptcy filing on Thursday.

Neiman’s gained its bloated debt load in the aftermath of a pair of leveraged buyouts. TPG Capital and Warburg Pincus, both private equity firms, acquired the luxury retailer in 2005 for $5.1 billion. They sold their holdings in 2013 for $6 billion to Ares Management, another private equity firm, and the Canada Pension Plan Investment Board.

While Neiman last year executed a distressed debt exchange, the “debt burden ultimately proved insurmountable, particularly given near term operating challenges related to the coronavirus pandemic,” David Silverman, senior director at credit ratings firm Fitch Ratings, said.

“The Neiman Marcus name is not going away any time soon. But, the only thing that saves retailers, like Neiman Marcus, is the strong presence of their legacy and name in the marketplace, giving the company an opportunity to be marketable and conduct substantial business in the future and eventually become profitable again,” Joseph Acosta, a bankruptcy attorney at Dorsey & Whitney, said.

The Chapter 11 process, he added, will help the retailer shed less profitable locations and deleverage its balance sheet, “leaving it a much stronger company when it emerges from bankruptcy.”

Founded in 1907 with one store in Dallas, Neiman has grown to encompass 67 stores across the Neiman Marcus, Bergdorf Goodman and Last Call nameplates, though it largely pulled out of the off-price business in March. The Last Call stores that remain part of the company will be used to clear out excess inventory from the full-price doors. It also operates the Horchow e-commerce platform.

Neiman expects to emerge from bankruptcy in early fall. Its luxury e-commerce business is not part of the filing and operates as a separate entity.