German luxury web site Mytheresa was acquired by Neiman Marcus in 2014.

Talks between Neiman Marcus Group and its creditors to restructure the retailer’s debt are ongoing, even as some sources said they have hit a potential bump.

Sources said Friday there’s an issue over the status of Mytheresa.com, the German luxury web site owned by NMG. Last week, NMG said it shifted MyTheresa from being “unrestricted, non-guarantor subsidiaries under the company’s debt instruments to sitting directly under Neiman Marcus Group Inc.”

However, another source said that talks between the Neiman Marcus Group and lenders are in “very early stages to extend the maturities.”

At least one bondholder is claiming that the shift could violate covenants of a loan agreement. However, NMG disputes that. On Friday, an NMG spokesperson told WWD: “As publicly disclosed, MyTheresa was already an unrestricted, non-guarantor subsidiary not part of our lenders’ collateral and it will remain outside of the collateral. This reorganization was expressly permitted by the company’s credit documents.”

Neiman’s didn’t specifically spell out its reasons for moving MyTheresa into the Neiman Marcus Group and declined to comment if talks with lenders to restructure the debt had come to a halt or were put on hold. WWD reported on Sept. 17 that NMG had begun talking with creditors to restructure its debt. The same day, Neiman’s posted its quarterly earnings report showing that it narrowed its losses and disclosed that it has a new four-year plan for growth.

NMG is owned by Ares Management LLC and the Canada Pension Plan Investment Board, which together bought the business for $6 billion in 2013, bringing long-term debt up to $4.46 billion. Neiman’s has interest expenses of around $300 million annually, dragging down profitability. The debt maturities don’t actually start until October 2020 with a $2.8 billion term loan and in 2021, there’s a $1.6 billion unsecured bond.

NMG’s chief executive officer Geoffroy van Raemdonck has declined to comment on any possible debt restructuring, but did recently tell WWD that the retailer has “ample liquidity” to service the debt.

With talks so far not leading to a mutually agreeable debt restructuring, NMG, as one source suggested, could be playing hardball by reorganizing MyTheresa into the Neiman Marcus Group and protecting it from creditors capturing it as collateral in the event of a default. The source suggested that the dispute on the status of MyTheresa could be taken up in court.

Talks are said to have centered around the possibility of lowering the interest rate and extending the maturities to give Neiman’s more time, in which case creditors would get collateral in return. It’s also possible that Neiman Marcus Group extends some equity to creditors.

According to the source, “Ares and CCPIB have been negotiating for the last two weeks with the lenders. Neiman’s wants to extend the debt, lower the interest, and told the lenders otherwise they would default. The lenders said ‘no’ and that they’re not going to do anything. The negotiations broke down. Now Ares is trying to screw the lenders, having carved out an asset, taking away that collateral. Now the lenders are going nuts.”

Reuters reported that Marble Ridge Capital LP sent a letter to NMG indicating that the Dallas-based luxury retailer, operator of the Neiman Marcus department stores, Bergdorf Goodman, Horchow and Last Call, as well as MyTheresa, could be in default on its debt by moving MyTheresa into NMG.

Creditors would be particularly interested in MyTheresa considering its rapid growth. In 2014, when NMG bought the web site, along with its Munich brick-and-mortar store, the business was generating $130 million in annual sales. But for fiscal 2018, MyTheresa operations were $364.1 million, and comparable revenues increased 37.1 percent from fiscal-year 2017.

Expectations on MyTheresa’s potential is further heightened by the $386 million Farfetch, another luxury web site, which had a huge first day of trading on the New York Stock Exchange on Friday. Shares shot up more than 42 percent to $28.45 in the issue’s first day of trading, giving it a valuation of more than $8 billion.

The situation between Neiman’s and its creditors is reminiscent of a dispute between J. Crew Group and its creditors after J. Crew two years ago shifted certain intellectual property into an unrestricted subsidiary, the J. Crew Domestic Brand LLC. J. Crew said then that the purpose was to provide “flexibility in connection with its evaluation of capital structure to strengthen the position of the entire corporate enterprise. The recent investment fully complied with the company’s term loan agreement.” J. Crew eventually reached a restructuring agreement with its creditors involving replacing old debt with new debt and providing creditors with equity in the company. J. Crew Group was taken private by Leonard Green and TPG Capital in a $3 billion deal in 2011 and was struggling to manage its debt, but continues to grapple with sales and merchandise issues at the J. Crew brand.

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