INTERNATIONAL - Distressed investor Marble Ridge Capital LP said in a letter to Neiman Marcus Group Ltd that the luxury department store company may be in default on its debt after it moved its Mytheresa business into an entity belonging to the retailer’s private equity owners.
“These recent actions threaten the viability of a storied franchise that includes marquee brands such as Neiman Marcus and Bergdorf Goodman,” another luxury department store also owned by the retailer, said Dan Kamensky, managing partner of Marble Ridge, in a statement about the letter, parts of which were made public on Friday.
Marble Ridge is working with law firm Brown Rudnick LLP and plans to organize with other creditors to look into the Mytheresa move, according to a person familiar with the matter. The hedge fund last year pursued a similar strategy with Singapore-based Global A&T Electronics Ltd.
“We believe a more responsible board would have engaged in a strategic review to maximize value for the benefit of all of the company’s stakeholders,” Kamensky said.
Buyout firm Ares Management LP and the Canada Pension Plan Investment Board (CPPIB) acquired Neiman Marcus for $6 billion in 2013, saddling the retailer with about $4.7 billion in debt.
Neiman Marcus said on Tuesday it moved the Mytheresa online business to an entity called Neiman Marcus Group Inc, owned by Ares and CPPIB.
“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,” Neiman Marcus said in a statement. “This reorganization was expressly permitted by the company’s credit documents.”
Ares and CPPIB did not immediately respond to requests for comment.
The transfer may have made the company insolvent, Marble Ridge said in the letter dated September 18 and seen by Reuters. Marble Ridge owns bonds and a portion of the term loan of Neiman Marcus.
Moving Mytheresa strips “an important and valuable asset away from the creditors of the company and (gifts it) to Ares and CPPIB,” for nothing in return, according to the letter.
Mytheresa’s earnings growth has outpaced Neiman Marcus, its outlet stores Last Call and Bergdorf Goodman online, Thomson Reuters IFR reported in a story this week, citing a JPMorgan analyst report.
Brick-and-mortar retailers including department stores have been hit hard by the rise in popularity of online shopping, with dozens filing for bankruptcy over the past several years. Reuters reported last year that Neiman Marcus was working with an investment bank to address its debt load.
J. Crew Group Inc, another upscale fashion retailer, faced litigation from its creditors after it moved its intellectual property to an affiliated company in a debt restructuring deal.