Neiman Marcus Fights To Survive

On May 7^th, management of Neiman Marcus marched into court to seek protection under the bankruptcy law’s chapter 11. The company presented a plan to survive; it proposed actions that would wipe out most of its $4 Billion in debt, leaving only about $750 Million. Management blamed the pandemic environment for going to court.

Now, just days later, a new twist has occurred.

According to Reuters, hedge fund Mudrick Capital Management asked Neiman Marcus Group ‘s independent directors yesterday (May 13, 2020) to explore a combination with rival department store chain Saks 5^th Avenue. This alternative course of action directly challenges the plan to reorganize under bankruptcy protection.

Wow.

Hudson’s Bay chairman Richard Baker, owner of Saks 5^th Ave., has been in discussions for half a decade with Neiman Marcus in an effort to acquire the company. Now along comes Mudrick with a similar plan. Mudrick, which holds a portion of the roughly $5 Billion debt, believes that the combination of the two luxury retailers would create a value of $2.8 to $4.7 Billion. To accomplish that, Mudrick feels that the combination would require the closing of at least 22 stores in overlapping or nearby locations.

This proposal is in contrast with the debtor in possession (DIP) plan prepared by PIMCO, Sixth Street and Davidson Kemper for the filed bankruptcy proceedings and the preparation of a quick exit from bankruptcy. Their plan laid out a quick return to more profitable operations from bankruptcy with a $650 Million package which has already been approved by a federal judge – over Mudrick’s objection.

During this pandemic time caused by COVID-19, I worry. Some of the top creditors with unsettled claims want to be paid, and they need that money all the more these days. Here are some of the top claims, many of them important brands in the luxury market: UMB Bank 137.2 Million, Monument Consulting $10.4 Million, Rakuten Marketing $7.8 Million, Chanel Inc. $6.0 Million, Veronica Beard $4.3 Million, La Mer $3.5 Million, Gucci America $3.2 Million, Dolce & Gabbana $2.7 Million, Stuart Weitzman $2.6 Million, Theory $2.5 Million, Christian Louboutin $2.3 Million, Sisley Cosmetics USA $2.2 Million. And, there are more.

 Neiman Marcus operates 43 stores and 2 Bergdorf Goodman units. It employs about 13,700 associates. It also operates Horchow, a luxury direct-to-consumer catalog business and has had Last Call Outlet stores. Those outlet stores are being closed. In addition, it operates mytheresa, an online website which has been kept out of the bankruptcy proceedings.

I doubt if the combination of the two retailers can produce the savings Mudrick suggests. I see a loss of 22 stores as a major negative factor since it would require a cut in staff and a reduction of status vis-a-vis vendors. I don’t think this new Mudrick twist is a good solution, and I hope that the plan submitted on May 7^th will move forward; more importantly, I hope it will be successful.