Neiman Marcus draws strong criticism from bankruptcy judge
While Neiman Marcus manages through a pandemic and the
damage to stores from the weekend’s protests, the Dallas-based retailer’s
bankruptcy has hit a rough spot with the judge overseeing its reorganization.
U.S. Bankruptcy Judge David Jones has ordered the official
creditors committee to investigate the transfer in 2018 of the company’s
Germany-based Mytheresa luxury business to Neiman Marcus’ former shareholders,
Ares Management and the Canada Pension Plan Investment Board. Ares and the
pension fund led the $6 billion leveraged buyout in 2013 that left Neiman
Marcus with unsustainable debt.
After a six-hour hearing on Friday, Jones questioned whether
two independent Neiman Marcus directors who were appointed in April were
qualified to investigate the Mytheresa transfer. Neiman Marcus attorneys had
presented them to the court as “disinterested managers” who would investigate
the transfer.
Neiman Marcus bondholder Marble Ridge had filed a motion in
the bankruptcy to have an independent examiner look into the transfer. The
bondholder’s attorney presented arguments that those board members were not
truly independent and testimony revealed so, according to the judge.
“I do not want to see a fiduciary to this estate ever appear
in front of me, ever again, unprepared, uneducated and borderline incompetent,”
Jones said at the end of the hearing Friday.
Marble Ridge withdrew the motion for a special examiner
after the judge said that the creditors committee could investigate the
transfer. Marble Ridge is one of nine representatives on the official creditors
committee that includes Chanel, Estee Lauder and Rakuten.
Marble Ridge had unsuccessfully sued Neiman Marcus in Dallas
County District Court last year, contending that Mytheresa, which some had
previously valued as a $1 billion asset, was improperly moved out of the reach
of the retailer’s creditors.
A key hearing on a final order to approve the retailer’s
$675 million debtor-in-possession financing, or funds it will use to operate
during bankruptcy, has been moved to June 10.
One of the retailer’s lenders, Deutsche Bank, said in a
filing Friday that it was concerned about the value of assets backing its $760
million loan to Neiman Marcus. The bank said the retailer has breached the
terms of its loan by underestimating inventory backing it by $159 million.
But in the same filing, Deutsche Bank said it supports “the
successful emergence” of the retailer from bankruptcy. Due to the costs and
delays a contested hearing would create, the bank said, it doesn’t object to
final approval of the bankruptcy financing package.
Neiman Marcus attorney, Matthew Fagen, said Tuesday that the
retailer hasn’t breached the loan agreement. He said at a short hearing on
Tuesday that the retailer’s sales have exceeded plan by about $100 million to
date. It’s also using those funds to operate and buy new inventory.
Judge Jones asked about the damage caused by protesters to
Neiman Marcus’ downtown Dallas store and in other cities. Fagen said it was
being assessed, he had no concrete data to quantify it and the retailer is
taking action to minimize it.
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