Exclusive: Neiman Marcus will file for bankruptcy this week – sources

(Reuters) – The Neiman Marcus Group is preparing to seek bankruptcy protection as early as this week, becoming the first major U.S. department store operator to succumb to the economic fallout from the coronavirus outbreak, people familiar with the matter said.

The debt-ridden Dallas-based company had few options after the pandemic forced it to temporarily close its 43 Neiman Marcus locations, about two dozen Last Call stores and its two Bergdorf Goodman stores in New York. .

Neiman Marcus is in the final stages of negotiating with its creditors for a loan totaling hundreds of millions of dollars, which would support some of its operations during the bankruptcy proceedings, the sources say. It also laid off many of its approximately 14,000 employees.

The bankruptcy filing could come within days, although the timeline could slip, the sources said. Neiman Marcus skipped millions of dollars in debt repayments last week, including one that gave the company just days to avoid default.

Neiman Marcus’ borrowings total about $4.8 billion, according to ratings firm Standard & Poor’s. Part of that debt is the legacy of its $6 billion leveraged buyout in 2013 by its owners, private equity firm Ares Management Corp and the Canada Pension Plan Investment Board (CPPIB). .

The sources requested anonymity because the bankruptcy preparations are confidential. Neiman Marcus and Ares declined to comment, while CPPIB representatives did not immediately respond to requests for comment.

Other department store operators who have also had to close their stores are fighting to avoid the fate of Neiman Marcus. Macy’s Inc and Nordstrom Inc rushed to secure new financing, for example by borrowing against some of their real estate. JC Penney Co Inc is considering filing for bankruptcy as a way to rework its unsustainable finances and save cash on impending debt payments, Reuters reported last week.

Signage outside the Neiman Marcus store is seen during the coronavirus disease (COVID-19) outbreak in New York, U.S., April 19, 2020. REUTERS/Jeenah Moon

A bankruptcy filing would be a sinister step that Neiman Marcus has spent the past few years trying to avoid. It pushed back the due dates for its financial obligations last year as part of a restructuring deal with some creditors, though the deals added to Neiman Marcus’ interest charges.

A trustee of some of the company’s bondholders sued Neiman Marcus last year, saying the company and its owners deprived investors of the value of its luxury e-commerce site MyTheresa by putting the company out of business. reach of creditors during a corporate reorganization. Neiman maintains that his actions were appropriate.

“In light of the significant headwinds resulting from the coronavirus pandemic and our expectation of a recession in the United States this year, we believe that the outlook for the company’s recovery is increasingly dim,” the authors wrote. Standard & Poor’s analysts in a note last week.

“We continue to view its capital structure as unsustainable,” the analysts added, lowering their credit rating on Neiman Marcus deep into “junk” territory. They said the move reflected the “high potential” for debt restructuring.

Once in bankruptcy, Neiman Marcus could attract interest from potential suitors looking to take over the company or some of its assets on the cheap, the sources said.

Saks Fifth Avenue owner Hudson’s Bay Co explored an offer for Neiman Marcus in 2017 but did not pursue it, people familiar with the matter said at the time. The Canadian company was taken private earlier this year by a group of shareholders led by its chief executive Richard Baker, and it is unclear whether it remains interested or would be able to pursue a new bid.

A representative for Hudson’s Bay did not immediately return a request for comment.

FASHION ON THE VERGE OF BANKRUPTCY

The first Neiman Marcus store opened in Dallas, Texas in 1907. It was opened by the Marcus and Neiman families, who decided to go into retail after considering and rejecting an investment in a beverage little-known soft drink at the time called Coca-Cola, according to the Neiman Marcus website.

The company expanded across the United States and in 1972 acquired Bergdorf Goodman in New York, itself founded in the early 1900s, becoming a fashion staple for celebrities and wealthy clients alike. looking for expensive handbags and clothes.

Like other physical department store operators, Neiman Marcus has struggled in recent years to compete with discount chain stores and consumers’ shift to shopping online. Luxury e-commerce companies such as Yoox Net-A-Porter Group (YNAP) and Farfetch Ltd have added to the competitive pressure Neiman Marcus faces.

The coronavirus outbreak has pushed the company to the brink. Although he has asked some workers to return to closed stores to fulfill online orders, these operations cannot compensate for lost sales in physical stores.

Reporting by Mike Spector and Jessica DiNapoli in New York; Editing by Greg Roumeliotis and Sonya Hepinstall

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