A Neiman Marcus bondholder has called for a bankruptcy court to authorise an investigation into the retailer, alleging it undertook an “elaborate scheme” to put a valuable asset out of the reach of creditors before its Chapter 11 filing this week.
Marble Ridge, a hedge fund that holds $65m of the US department store chain’s debt, alleged Neiman benefited its private equity backers at the expense of creditors when it transferred its “crown jewel”, the MyTheresa ecommerce business, to a parent company almost two years ago.
Its complaint about the financial manoeuvre comes one day after Neiman filed for court protection from creditors and sets the stage for a courtroom fight over the luxury chain’s actions leading up to the bankruptcy.
Neiman, which has 67 outlets and more than 13,000 employees, struggled for years with a heavy debt burden and was finally brought to its knees by the coronavirus lockdown.
The company is planning to use the bankruptcy process to wipe $4bn from its $5.5bn debt pile, a legacy of its 2005 leveraged buyout by TPG and Warburg Pincus and subsequent sale in 2013 to Ares and the Canada Pension Plan Investment Board.
Holders of two-thirds of Neiman’s debt are supporting a deal under which creditors would become the retailer’s majority owners after the bankruptcy, the company said.
The proceedings will not, however, cover MyTheresa, an online seller of high-end brands that had been one of Neiman’s most attractive assets after it bought the Munich-based business in 2014.
MyTheresa was owned by Neiman Marcus Group Ltd LLC until, almost two years ago, the online retailer was transferred up to a parent company, The Neiman Marcus Group Inc. It was Neiman Marcus Group Ltd LLC that filed for bankruptcy this week.
In documents filed with the bankruptcy court on Friday, Marble Ridge said that MyTheresa could have been worth nearly $1bn and “may well form the basis for substantial estate recoveries” in the bankruptcy.
The hedge fund said that an “official creditors’ committee or some other independent fiduciary should be authorised to investigate the facts and circumstances [related to the transfer] and pursue all available remedies”.
The MyTheresa transfer had been at the direction of Neiman’s leveraged buyout sponsors and aided by advisers at Kirkland & Ellis and Lazard, Marble Ridge claimed.
The transaction has already been the subject of litigation, and Neiman has disputed the claims that it was improper. The company has described the transfer as an “organisational change” that was allowed under the company’s debt agreements. In court documents this week, it said MyTheresa’s operations had “always been independent” of the rest of the group.
Following the MyTheresa transfer, Neiman completed a recapitalisation and, as part of the deal, some creditors were given an interest in MyTheresa.
The company said this week that the recapitalisation had been “overwhelmingly supported” by creditors and “reflected a robust and comprehensive negotiation process”.
Marble Ridge argued the recapitalisation was “coercive”, however, because it required consenting creditors to waive claims related to the MyTheresa transaction.
The hedge fund had filed a lawsuit against the company over MyTheresa in Texas in December 2018. The case was dismissed because the hedge fund lacked “standing”, Marble Ridge said.
An indenture trustee, which acts for bondholders, subsequently filed another suit over MyTheresa in New York last summer. That case has been postponed by the pandemic, Marble Ridge said.
Neiman Marcus said it was not providing comment beyond its court filings. Lazard and Kirkland did not respond to requests for comment.