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Neiman Gets the Nod for Bankruptcy Financing, But Troubles Are Far From Over

Bankrupt Neiman Marcus Group received court approval Tuesday to access the total amount of its debtor-in-possession financing facility, a move that allows the luxury retailer to begin planning for fall and beyond.

Following its Chapter 11 filing on May 7, Neiman initially received interim approval for $275 million as part of the first-day motions that kicked off bankruptcy proceedings. The court order on Tuesday allows Neiman to immediately tap into $250 million, with an additional $150 million unlocked after September.

“With the approval from the court to fully access the significant DIP financing we have secured from our creditors, we are well positioned to continue to serve our customers and global luxury brand partners,” Geoffroy van Raemdonck, chairman and CEO, said. “This financing provides us with ample liquidity to ensure business continuity as we gradually reopen our stores, invest in Fall inventory, and fund the expansion of our digital offerings as we continue our journey to become the pre-eminent luxury customer platform. Importantly, we remain on track to emerge from this process in Fall 2020.”

The high-end retailer is in the process of reopening its stores, which temporarily closed in mid-March amid shelter-in-place orders to curb the coronavirus outbreak—driving a liquidity crunch for discretionary retailers across the board.

Van Raemdonck said Neiman’s strong omnichannel execution has propped up the business in recent weeks. “With our digital stylists and remote selling capabilities, our associates have continued to engage with and support customers anytime, anywhere, driving significant sales even while remote. Ninety percent of the store fleet is open to some degree–either for curbside pickup, private appointment, full shopping, or some combination of those,” he said.

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At the time of the filing, Neiman said it had forged an agreement with over two-thirds of its debt holders. That agreement calls for the conversion of debt to equity upon exit from Chapter 11, plus a commitment from some debt holders to backstop the full amount of the $675 million DIP facility and a $750 million committed exit financing facility.

On Tuesday, the upscale chain reiterated that its post-bankruptcy capital structure is expected to wipe out about $4 billion in existing debt, with no near-term maturities.

The retailer entered Chapter 11 with over $5 billion in debt. That amount was the result of two leveraged buyouts (LBO), which placed a heavy debt load onto its balance sheet. LBOs were the rage in the mid-aughts, when private equity firms flushed with cash began investing in retail. Neiman’s first LBO came in 2005 when it was acquired by Texas Pacific Group and Warburg Pincus in a $5.1 billion buyout. Debt built up when consumers pulled back on spending during the Great Recession in 2008 and 2009. Despite its financial distress, the debt load piled up even higher following a second LBO, this time in 2013 when Ares Management and the Canada Pension Plan Investment Board acquired the company for $6 billion.

Sales at Neiman have trended better starting in 2018 as it invested in digital capabilities. The company stopped reporting earnings in mid-2019 following a distressed debt exchange. Neiman has faced an uphill battle with the amount of leverage on its balance sheet, which meant most cash flow was used to make interest payments on the debt. That left limited resources to invest in the business, such as testing for new customer acquisition or trying out new brands to stimulate consumer interest.

But while pricey chain is touting an exit from bankruptcy in a few months’ time, one point of contention it will have to resolve is the fight over its MyTheresa e-commerce operation it had transferred to a separate entity controlled by its private equity owners. Some of its debt holders, including Marble Ridge, have vociferously been contesting the transfer, which is the subject of a lawsuit filed in a New York State Manhattan court. The company’s unsecured creditors committee, which includes Marble Ridge and Simon Property Group, is also expected to dig a little deeper into the transaction.

In bankruptcy proceedings, it is common for the unsecured creditors committee to scrutinize such dealings–particularly if there could be an allegation of fraudulent conveyance to keep certain assets out of the reach of lenders–as they hunt for available funds to recoup their outlay.