A lender to Neiman Marcus Group Ltd. is taking the retailer to court over the recent transfer of a valuable subsidiary, which the company moved to a corporate parent entity out of the reach of creditors.
Marble Ridge Capital LP filed a complaint in Dallas court Monday alleging that the shuffle of e-commerce unit MyTheresa constituted a “fraudulent transfer of assets totaling approximately $1 billion of value for no consideration,” according to a statement.
Neiman Marcus “has taken extraordinary steps to obstruct the ability of creditors to lawfully challenge the scheme,” Marble Ridge said. The New York-based firm also said it advised the company’s financial adviser, Lazard Ltd., that it was concerned the re-designation of MyTheresa “may have caused a default under the indentures,” according to the suit.
The asset transfer left Neiman Marcus with insufficient assets to cover its about $5 billion of debt, a situation that has continued to deteriorate since the MyTheresa transfer, Marble Ridge said in the complaint.
Since the time of the asset transfer, the value of Neiman Marcus’s assets at a “fair calculation” have “fallen even further below the amount of its funded debt liabilities,” Marble Ridge said. The company is “inadequately capitalized” and has “insufficient assets” to pay its debt as it comes due, according to the suit.
‘Strip value’
In a letter to the board earlier this month, Marble Ridge said the transaction allowed Neiman Marcus’s owners, Ares Management LP and Canada Pension Plan Investment Board, to “strip” valuable assets from the company without consequence. It also said the company was insolvent at the time, creating the need for a board independent from the interests of the parent company.
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A representative for Dallas-based Neiman Marcus called the allegations in the Marble Ridge lawsuit false and said in a statement on Monday to Bloomberg that “Neiman Marcus is not and has never been in default, and is in full compliance with the terms of its debt agreements.” The department store has earlier said that the transaction was “expressly permitted,” by the company’s credit documents.
The company’s stores are all profitable according to a measure of earnings and Neiman Marcus has around $620 million in liquidity, the representative said. Last week, it reported its fifth consecutive quarter of sales growth.
Representatives for Ares and CPPIB didn’t immediately respond to requests for comment.
Neiman Marcus has become the latest in a string of retailers to face pushback over whether such transfers unfairly deprive creditors of claims on assets if a borrower needs to restructure. The allegations echo complaints against retailers including PetSmart Inc. and J. Crew Group Inc., who made changes to their capital structures in a way that complicated restructuring talks.
Marble Ridge is asking the court to reverse the transfer and return the assets to its original place and award “damages” based on the alleged diminished value caused by the transfer.