Neiman Marcus is struggling. One of several giant retailers facing massive sales declines amongst the novel coronavirus pandemic, Neiman Marcus is expected to file for bankruptcy protection in Dallas federal court any day now. The company managed to line up a $600 million financing package from its creditors including Pacific Investment Management Co, Davidson Kempner Capital Management LP, and TPG's Sixth Street Partners. However, the investment firm Mudrick Capital Management LP and hedge fund Third Point LLC have plans to push the department store to sell itself, Reuters reported.
Neiman Marcus is among the countless retailers and businesses that have had to close their stores while weathering this pandemic. Earlier this year, Neiman Marcus closed all 43 of its namesake stores, two dozen "Last Call" locations, and both Bergdorf Goodman stores in New York.
Reuter's sources reported the Mudrick submitted a $700 million debtor-in-possession (DIP) financing proposal to Neiman Marcus, but that the company instead intends to use the $600 million loan it seems to have secured through weeks of negotiating with creditors. DIP loans are high-interest loans that must be repaid before other obligations and carry strict terms and guidelines for the company to follow.
The company's current plan involves using the $600 million financing package to help sustain its operations while calling for creditors to forgive the majority of its $5 billion in debt in exchange for ownership of the company, Reuters sources said. This plan requires the approval of a bankruptcy judge before it can be carried out.
Mudrick et. al. intends to challenge the $600 million financing package in court, at least in part by arguing that their fees are less expensive than those offered by the creditors. They intend to call on Neiman Marcus to seek an outright sale under bankruptcy protections. The investor groups see Saks Fifth Avenue's parent company Hudson's Bay Co as a potential buyer, but it's unclear whether Hudson's would be able to carry out such a purchase. If the company is unable to find a buyer, it will need to restructure its debt and reduce its size before exiting bankruptcy.
One part of the proposed $700 million financing package is a $100 million fund set aside to repay debtors who hold Neiman Marcus' devaluing inventory as collateral.
Neiman Marcus has struggled in recent years as retail chains moved sales on-line and brick-and-mortar store locations became less viable. The company has furloughed a large portion of its roughly 14,000 people workforce.
Other companies facing the strain and looking anxiously at Neiman Marcus' downfall are Nordstrom Inc (NYSE: JWN) and J.C. Penny Co Inc (NYSE: JCP). Both are seeking to secure new financing and J.C. Penny is also considering bankruptcy.