Disgruntled creditor Marble Ridge Capital has filed a complaint in a Dallas court against the Neiman Marcus Group over the transfer of assets.
In its complaint, filed Monday in the District Court of Dallas County in Texas, Marble Ridge alleges “the fraudulent transfer of the MyTheresa assets to Ares Management and the Canada Pension Plan Investment Board for no consideration.”
“These assets have been placed beyond the reach of the company’s creditors in order to hinder and delay creditor recovery,” the complaint contends.
Marble Ridge also contends that Neiman Marcus is “insolvent” and has asked the court to appoint a receiver to address the issue of the transfer of about $1 billion of assets to Ares and the CPPIB, owners of the Neiman Marcus Group.
The complaint seeks in excess of $1 million in relief.
Neiman Marcus Group quickly and strongly responded to the accusations on Monday, firing back, “For the last three months, Marble Ridge has made numerous false statements in the press and has repeated them in this complaint. The company will defend itself vigorously against these false allegations. Neiman Marcus is not and has never been in default, and is in full compliance with the terms of its debt agreements.”
The Dallas-based luxury retailer also stated that it just completed its fifth consecutive quarter of positive sales and adjusted earnings before interest, taxes, depreciation and appreciation was up 10.6 percent from the same quarter in the previous year. “All Neiman Marcus and Bergdorf Goodman stores are EBITDA positive and the company has $620 million in liquidity,” the company stated.
As previously reported, NMG’s fiscal first-quarter net losses widened to $28.2 million from $26.2 million a year ago, but adjusted EBITDA rose to $135.3 million from $122.3 million. Interest expense came to $80.5 million in the quarter. Net sales were $1.093 billion from $1.096 billion a year ago; comparable revenues rose 2.8 percent.
The group has been generating enough liquidity to pay off the costs of its loans, but the debt has been taking a toll on the bottom line.
According to sources, the company this year has been engaged with talks, characterized as on and off, with its creditors to refinance the debt. The company’s proposal to restructure the debt includes using leases valued at $1.9 billion as collateral.
To reassure vendors, Neiman Marcus Group chief executive officer Geoffroy van Raemdonck recently sent a letter to vendors indicating that NMG has been “in discussions with its lenders and investors to address debt that does not mature until October 2020 at the earliest. These talks are part of our ongoing efforts to improve our balance sheet and strengthen NMG as a company.”
In the letter, obtained by WWD, van Raemdonck said, “Given our brand’s prominence, it is likely that these discussions will generate continued coverage in the retail and financial press. We would like to reiterate that we believe we have ample runway to refinance our debt. The discussions with our lenders are a thoughtful and deliberate process.”
Van Raemdonck also cited “positive momentum in our business” and “a clear strategy in place to enhance our position and improve our growth and performance. As reported in our Q4 ’18 earnings announcement, the company delivered its fourth consecutive quarter of comparable sales increases and a year-over-year increase in adjusted EBITDA. Our stores continue to perform well, our online business is growing, and we continue to attract new customers.”
He told vendors, “We value your partnership and role in our success. For us, it is business as usual.”
Still, as time passes, the pressure on Neiman’s to restructure its debt grows.
The retailer has $4.6 billion debt on its books, which includes a $2.8 billion term loan due in October 2020 and two sets of bonds and an asset-backed loan due in 2021.
Neiman’s is seeking to drive adjusted EBITDA to more than $700 million within five years, and reported adjusted EBITDA of $458 million for the last 12 months.
Last fiscal year, the company paid more than $307 million to cover interest on the debt.
Marble Ridge’s complaint characterized the Neiman Marcus Group as “highly leveraged as a result of two successive leveraged buyouts.”
Marble Ridge had no comment on the size of Marble Ridge’s position in Neiman’s debt. Marble Ridge is a holder in 8.75 percent, 9.5 percent senior cash pay notes and PIK toggle notes due 2021 as well as term loans.
Marble Ridge warned that if NMG is unable to repay or refinance three months prior to the October 2020 maturity, a “springing maturity” gets triggered, causing the company’s revolver to mature early, in July 2020.
The creditor said MyTheresa, the Berlin-based luxury web site with a store in that city, has an estimated value of $1 billion. Creditors would be particularly interested in MyTheresa considering its rapid growth. In 2014, when NMG bought MyTheresa, the business was generating $130 million in annual sales, primarily in Europe. But for fiscal 2018, MyTheresa operations were $364.1 million, and comparable revenues increased 37.1 percent.
Marble Ridge also said it is seeking the appointment of an equity receiver under Texas law. “The appointment of a receiver here would allow a neutral third party to address this misconduct, inter alia, by bringing claims with respect to the misconduct alleged herein,” the litigation asserts.
Marble Ridge, considered a value-oriented distressed debt investment firm, has been complaining about the transfer of MyTheresa since September. Generally, it does not take activist positions in its investments.