The conflict over Neiman Marcus Group and Mytheresa, the German luxury web site the retailer acquired in 2014, is playing out on parallel tracks.
Controversy still surrounds the transaction that, according to Neiman Marcus, was completed in 2018, which had moved the Mytheresa subsidiaries out of its debt structure. Even before Neiman’s ongoing bankruptcy, the move prompted some creditors to file lawsuits claiming that the transaction was designed to keep the value of Mytheresa — which creditors have described as a $1 billion asset — away from the reach of creditors. Those lawsuits have since been dismissed, but the battle very much rages on.
For one, the retailer’s bankruptcy proceedings are still playing out in Texas federal court, where unsecured creditors are arguing they should be allowed to pursue recoveries related to the Mytheresa transfer. U.S. Bankruptcy Judge David Jones has allowed the unsecured creditors committee to file a competing disclosure statement for a Chapter 11 plan in the case, and a hearing is scheduled for Tuesday.
Meanwhile, UMB Bank NA, the trustee for a group of bondholders, filed a new lawsuit Thursday in New York state court against Ares Partners Holdco LLC and other Ares entities; Ares is one of the owners of Neiman’s. UMB Bank filed the suit on the same day the state court dismissed its previous suit over the Mytheresa transfer, which it had filed in August 2019.
Neiman and Ares had sought to dismiss that previous suit by the bondholders’ trustee by arguing that the indentures at issue — that is, the loan documents that governs the bonds — contain waivers or releases that prevent the trustee from bringing the suit.
They had also argued that the trustee can’t bring the suit before there had been an event of default, which at the time they said there wasn’t, because Neiman Marcus had not missed any payments on its debt at the time.
In its new lawsuit this week, UMB Bank argues that the default event has come to pass after all, as Neiman’s bankruptcy demonstrates. The suit argued that Neiman’s had defaulted on its interest payments to unsecured noteholders. The UMB Bank suit only targets Ares entities, as Neiman’s ongoing bankruptcy would essentially pause any other separate legal action against Neiman Marcus and its other related entities in Chapter 11.
“On May 7, 2020, the inevitable bankruptcy Ares’ conduct precipitated came to fruition, with the company filing a Chapter 11 Bankruptcy Petition in the Bankruptcy Court for the Southern District of Texas,” the complaint said, referring to the Neiman Marcus bankruptcy. “On or about May 15, 2020, the default created by the missed interest payment ripened into an event of default, which is continuing, under the indentures.”
A representative for Ares Management contended in a statement Friday that the claims lacked merit.
“The latest suit filed by UMB makes the exact same claims that were just dismissed for lack of standing, which continue to be entirely without merit,” a spokesman for Ares Management said in the statement.