Neiman Marcus is likely to file for bankruptcy as soon as this week as it nears a deal with a group of lenders led by Pacific Investment Management Co. (Pimco), which would gain control of the company via a debt for equity swap, sources familiar with the situation confirmed to Adweek, who requested anonymity due to the confidentiality of the negotiations.
These lenders would include Davidson Kempner Capital Management and Sixth Street Partners, the sources also confirmed, which would provide the financing for the reorganization along with Pimco. Neiman Marcus would be the third retailer to file for bankruptcy during the Covid-19 pandemic, following apparel retailer J.Crew and premium denim brand True Religion.
Like J.Crew and True Religion, the luxury department store chain was backed by private equity. Ares Management and Canada Pension Plan Investment Board acquired the chain for $6 billion in 2013 from private equity firms TPG and Warburg Pincus.
The news about the bankruptcy filing was first reported by Bloomberg on Monday.
While Neiman Marcus declined to comment, it previously said in an email to Adweek on March 25 that it was weighing all of its options to ensure its “financial strength” as it grappled with the cost of doing business during a pandemic.
“We are evaluating all courses of action to preserve our financial strength so that we may continue serving our customers and associates and being a great partner to luxury brands globally,” the company had said.
Credit rating agency S&P said Neiman Marcus was already in default as of April 22 as the result of missed interest payments. According to credit rating agency Moody’s, Neiman Marcus had $4.3 billion in debt on its balance sheet, which was the result of the leveraged buyout. The retailer had revenue of $4.7 billion for the 12 months ending on April 27, 2019 and negative cash flow.
Neiman Marcus successfully extended the maturity date on its term loan last year, along with issuing new debt and completing an exchange offer for its senior unsecured notes, giving the retailer more time to turn around the business, according to Moody’s.
Neiman Marcus previously made the decision to temporarily close its stores, which includes Bergdorf Goodman in New York, in response to the Covid-19 outbreak. The pandemic exacerbated the woes of the already struggling retailer, which had been marked since early 2017 by rating agencies as having a high probability of default.
Despite its debt load, Neiman Marcus has been viewed as a generally well-run retailer, with about a third of its revenue generated online, a positive for the chain. The company was already taking steps to cut costs and streamline the business, announcing on March 11 that it would focus more on full-price selling by closing most of its off-price Last Call stores by the fiscal first quarter in 2021. The company also initiated the sale process of two of its Texas distribution centers.