The luxury retailer filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas having lined up $675 million in debtor-in-possession financing and a binding restructuring agreement with lenders holding over two-thirds of the company’s outstanding debt. The filing follows the department store’s evident liquidity troubles, as it missed interest payments on bonds.
Creditors have also committed to a $750 million financing package to exit bankruptcy and continue its evolution.
Some of fashion’s biggest names were left hanging with the bankruptcy and are owed millions of dollars, including Chanel Inc. (owed $6 million), Veronica Beard ($4.3 million), La Mer ($3.5 million), Gucci America ($3.2 million), Dolce and Gabbana USA ($2.7 million), Stuart Weitzman ($2.6 million), Theory ($2.5 million) and Christian Louboutin ($2.3 million).
The plan is to finish pushing Neiman Marcus through the Chapter 11 process in the fall and eliminate $4 billion in debt along the way, leaving the company in the hands of its current lenders.
Geoffroy van Raemdonck, chairman and chief executive officer of the company, said: “Prior to COVID-19, Neiman Marcus Group was making solid progress on our journey to long-term profitable and sustainable growth. We have grown our unrivaled luxury customer base, expanded our industry-leading customer relationships, achieved higher omni-channel penetration, and made meaningful strides in our transformation to become the preeminent luxury customer platform. However, like most businesses today, we are facing unprecedented disruption caused by the COVID-19 pandemic, which has placed inexorable pressure on our business.
“The binding agreement from our creditors gives us additional liquidity to operate the business during the pandemic and the financial flexibility to accelerate our transformation,” the ceo said. “We will emerge a far stronger company. In a world that is changing, we are uniquely positioned to give our brand partners access to our loyal luxury customers like no other company. We will deliver that through the strength of our associate relationships and digital solutions.”
Prior to the filing, Neiman Marcus Group and the associated Mariposa Intermediate Holdings were set up with new boards to lead the restructuring process. Both boards are chaired by Van Raemdonck.
Mytheresa, which Neiman Marcus’ prior owners shifted away from the retailer in a move contested by some lenders, is not a part of the bankruptcy and will continue to operate independently.
While the filing does pave a way for the company to lift its crushing debt load, answering a key question that’s loomed for years, the road ahead through the COVID-19 crisis is still extremely uncertain for Neiman Marcus and the rest of retail.
The company said its stores — including Neiman Marcus, Bergdorf Goodman and Last Call — would remain mostly closed for the rest of this month, extending furloughs and salary reductions.
However, 10 of the company’s stores are offering customers a curbside pickup service, including all the all Texas Neiman Marcus stores and locations in Tampa, Las Vegas and Tysons Corner stores, in Virginia. And this week stores in Atlanta and Dallas started allowing private appointments with customers.
Since its 2013 acquisition by Ares Management LLC and the Canada Pension Plan Investment Board, NMG has borne roughly $4.5 billion in debt, servicing it with some $300 million in annual interest. The company runs 43 Neiman’s stores and two Bergdorf Goodman stores, as well as an online business that includes neimanmarcus.com, bergdorfgoodman.com, and the Mytheresa luxury web site.
For vendors, in particular, a foremost concern would be whether Neiman’s would be able to pay its bills during the bankruptcy, and what sort of assumptions the retailer is making about its ability to reopen any stores it plans to keep.
The filing highlights some of the biggest challenges facing retail during the COVID-19 pandemic. It’s difficult to court potential buyers, or even to make reliable revenue projections, while stores are still closed. And it is difficult to predict when stores can be safely reopened, or when customers would actually feel safe enough to shop.
In the past week, a number of U.S. states in the Northeast and on the West Coast have formed regional groups to coordinate when to reopen. New York has extended its shutdown until May 15.
But what that means for retail is still unclear, as it’s possible for governments to extend shutdowns still further if necessary. Reopening stores after that would likely involve a series of time and resource-intensive steps including rehiring employees and setting up safety measures at stores, with no guarantees about consumer behavior when stores do open.
A bankruptcy process during this type of widespread uncertainty, when it’s not clear what the future of the in-store retail business is, is fairly uncharted territory, experts said.
“The big point of suspense is, what’s their business going to be like when the pandemic is over? Will the luxury customer come back?” said Mark Cohen, director of retail studies at Columbia Business School, who was previously chairman and ceo of Sears Canada Inc.
“No one knows with any clarity when the businesses can reopen, and … under what circumstances can they open, and how will the customer feel about shopping from a health point of view or a financial point of view,” he said.
The bankruptcy proceedings themselves may also be complicated by a lack of visibility into revenues in the coming weeks and months. That uncertainty complicates the calculus not only for vendors, which may hesitate to continue shipping to a retailer unable to pay its bills during the bankruptcy, but is also likely to deter lenders uncertain of what returns they can expect from a transaction in the current climate.
“Restarting a business after having it shut down is not like turning on a light bulb,” said Bradford Sandler of Pachulski Stang Ziehl & Jones LLP, who is not involved in the bankruptcy.
“It takes a huge effort, and, in all likelihood, it has to be done in stages,” he said. “Until the consumer public feels it’s safe outside, it’s going to take time for revenue to ramp up, and no one knows how long that will take.”
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