As the Neiman Marcus group prepares to file for bankruptcy this week, a group of investors is planning to challenge a $600 million financing package and wants to push the US department store to sell. Facing imminent bankruptcy, it declines for the moment to comment.
It is the first US department store operator to succumb to the economic fallout from the coronavirus epidemic.
While Macy’s Inc. and Nordstrom Inc. have rushed to obtain new financing, including borrowing on some of their real estate properties, Neiman Marcus is already far advanced in its bankruptcy proceedings.
After the pandemic forced it to temporarily close its 43 stores, about two dozen Last Call stores and its two Bergdorf Goodman stores in New York, and while it has been under increasing competitive pressure in recent years from luxury e-commerce companies (such as Yoox Net-A-Porter Group and Farfetch Ltd), the US retail chain has accumulated millions of dollars in debt payments, about $4.8 billion according to the credit rating company Standard & Poor’s.
Its bankruptcy is so far inevitable.
In this context, the American investment company Mudrick Capital Management LP then submitted to Neiman Marcus a brand new $700 million proposal for a so-called debtor-in-possession financing (DIP financing). The hedge funds of Daniel Loeb Third Point LLC and Fir Tree Partners are also expected to be part of the group offering the financing.
Neiman Marcus plans to use instead a $600 million loan that he spent weeks negotiating with creditors including Pacific Investment Management Co, Davidson Kempner Capital Management LP and Sixth Street Partners of TPG, according to sources close to the file. The goal: the cancellation by creditors of most of his $5 billion debt in exchange for retailer ownership.
Loan proposals that compete directly with each other
It’s a competition that new investors can’t accept: in court this week, they are preparing to challenge Neiman Marcus’ $600 million old financing proposal, arguing, among other things, that their fees are cheaper, according to sources in the file.
Instead, they are proposing a sale of Neiman Marcus under bankruptcy protection, before attempting to reorganize its finances and operations, sources said. They see the owner of Saks Fifth Avenue Hudson’s Bay Co as a reasonable buyer and also expect other suitors to show an interest in Neiman Marcus.
A financing proposal therefore came up at the last minute, but the investors behind the new loan are unwilling to give in and are instead trying to persuade the Neiman Marcus group to accept their rival loan.
Competition for bankruptcy financing that highlights the financial attractiveness of DIP loans to investors. They carry high interest rates, are repaid before other obligations, and usually carry strict terms that include milestones a company must meet.
Final approval of company financing will be the responsibility of a bankruptcy judge. The location and timing of the bankruptcy filing had not yet been set on Sunday, the sources warned.
Verdict in a few days then.
Headline photo: © Neiman Marcus / Facebook
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