Neiman Marcus in The Shops at Hudson Yards is close to declaring bankruptcy due to the effects of the COVID-19 pandemic forcing closures across America, New York, NY May 1, 2020. (Anthony Behar/Sipa USA)(Sipa via AP Images)

In 2014, Neiman Marcus acquired the German luxury web site Mytheresa, an international e-commerce business that some of Neiman’s most vocal creditors have called its “crown-jewel” asset. 

The apparent transfer of the asset four years later would appear to be a technical affair involving a group of affiliated entities, some of which are now in bankruptcy, and some that aren’t. And yet, it is an increasingly contentious feature of Neiman’s Chapter 11 proceedings, because it sparks a controversy around value, and who gets to have it — the quintessential question in a bankruptcy. 

On Friday night, both, the unsecured creditors committee and Neiman’s leveraged buyout sponsors — Ares Management Corp. and Canada Pension Plan Investment Board, which  had purchased the retailer for $6 billion in 2013 — filed unsealed versions of their contrasting reports on the Mytheresa transfer. 

In the telling of Ares and CPPIB, the transactions to distance Mytheresa from the retailer were simply a practical response to a somewhat mismatched union. Mytheresa’s flourishing e-commerce operations were not quite gelling with Neiman’s own faltering online infrastructure, Ares and CPPIB said in their report.

For Mytheresa, being part of Neiman Marcus’ capital structure also meant having to answer for the legacy retailer’s troubles with its credit ratings, their report said. Those circumstances, combined with Neiman’s ongoing financial difficulties, and challenges for brick-and-mortar retail more broadly, meant the company had to act to preserve Mytheresa’s value, according to their report.  

“In the years after the initial investment, MyTheresa had not created the desired synergies that supported its acquisition thesis, and so the sponsors, as responsible stewards, pursued opportunities to increase flexibility and maximize outcomes for the different business lines and thereby the enterprise as a whole,” they wrote in the report. 

The mechanics of the transfer appear somewhat convoluted, as described in court documents. The entity Neiman Marcus Group Ltd. LLC, under the supervision of Ares, moved the Mytheresa operating companies to Neiman Marcus Group Inc., the parent company of the Neiman entities currently in bankruptcy, creditors have said. 

The Neiman Marcus Group parent and Mytheresa are not themselves part of the ongoing bankruptcy, but questions around the Mytheresa transactions are reaching fever pitch in the retailer’s bankruptcy proceedings as it works to build consensus around a reorganization plan. 

Unsecured creditors, who typically stand to recover a fraction of what they’re owed in a bankruptcy, are essentially arguing that they should be allowed to seek monetary recoveries related to the Mytheresa asset.

To that end, they ascribe an underhanded motive to the 2018 transactions, according to their own 116-page report of their preliminary findings of the Mytheresa transfer, filed Friday night.

The committee, which has led its own weeks-long investigation into the transactions this summer, said that the Mytheresa transfer represents significant value to them — they estimate it could provide “hundreds of millions of dollars” to the bankruptcy estates — but that Ares had used those transactions to effectively keep the asset out of creditors’ reach. 

Israel Shaked, a litigation expert hired by the committee, found that Mytheresa was worth roughly $822 million at the time that it was transferred out of Neiman’s corporate structure in September 2018, the creditors’ report said. 

“There is no doubt that the plan to siphon value from the debtors, and transfer assets outside the reach of their creditors, was directed by the sponsors,” the creditors committee wrote in its preliminary report, referring to LBO sponsors Ares and CPPIB. 

The parties are also still discussing a possible settlement, their attorneys told a Texas bankruptcy court on Thursday. 

Friday’s unsealed reports were filed ahead of an upcoming hearing on disclosure statements on its reorganization, which is scheduled for Tuesday. The hearing had been postponed for more than a week as the Mytheresa dispute flared on.

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