Neiman’s Bankruptcy and the Mytheresa Transfer

As the Neiman Marcus bankruptcy proceedings get under way, some creditors have pushed the question of how the retailer handled the transfer of Mytheresa, the German luxury web site it acquired in 2014.

The conflict, which has been the subject of litigation including a suit in Texas state court that was dismissed, as well as a still pending suit in New York state court, has repercussions for unsecured creditors, a couple of vocal contenders who had brought those suits told the court at the retailer’s first day bankruptcy court hearing on Friday.

In their telling, Neiman’s took the Mytheresa asset, which they claim is worth $1 billion, and moved it from the reach of creditors. They have claimed that the retailer’s leverage buyout sponsors — private equity fund Ares Management and investment fund Canada Pension Plan Investment Board, which took over Neiman’s in 2013 for $6 billion — took Mytheresa out of the retailer’s debt structure when “they knew that bankruptcy was inevitable,” according to these creditors.

“We think this asset should be preserved and that claims against third parties who participated in the fraudulent transfer should be preserved for the benefit of the unsecured creditors,” David Elsberg, managing partner of Selendy & Gay PLLC, told the bankruptcy court on Friday. Elsberg represents UMB Bank in its capacity as indenture trustee for certain senior notes issued by Neiman Marcus Group LTD LLC and others. UMB Bank brought the New York state court suit.

“We look forward to working with Neiman’s and [to] help it emerge from bankruptcy in a position of strength, so that a storied retailer will once again become successful,” Elsberg told the court. “I wanted to speak today just to let your honor know that we want to ensure that Neiman Marcus does so in a way that’s fair to all creditors.”

On Friday, Neiman’s attorney Anup Sathy, a partner at Kirkland & Ellis LLP, acknowledged that the Mytheresa transfer was likely to be a point of contention during the bankruptcy, but stressed that the retailer’s 2019 restructuring had the support of most of its creditors.

“Very consensual, very hard fought and, candidly, one of the most complicated out-of-court restructurings that we’ve seen,” Sathy said at the hearing. “But [as] with many out-of-court transactions, support was not universal,” he added. “A minority of those bondholders who chose not to participate, have pursued a different litigation-focused step.”

The conflict will be closely watched by retailers and their advisers as a series of bankruptcy filings are expected later this year in response to the COVID-19 pandemic. The bankruptcy code generally allows debtors or the trustee, or potentially creditors, to scrutinize certain transfers of assets made by a company within two years before it files for bankruptcy.

The rationale behind that idea is generally to prevent companies from moving their assets in a way that may wrongfully prevent creditors from making recoveries during a bankruptcy, attorneys said.

“I think the creditor groups were putting everyone on notice that while all this is going on, they view Mytheresa as a crown jewel with a lot of value that was moved to another corporate structure,” said Joel Shapiro, partner at Blank Rome LLP. Shapiro is not involved in the Neiman’s bankruptcy or the dispute over Mytheresa, and spoke generally.

“That will be the subject of extensive and intensive negotiations to see if they can reach an agreement on what value, if any, can come back, or, if they cannot agree, that’s what the courts are for,” he said.

Any resolution in the dispute over the course of the bankruptcy could also impact which creditors may benefit from any settlement or recoveries on the issue, attorneys said.

“On a broad level, regardless of whether the litigation goes forward, or where it goes forward, Chapter 11 cases often act as a catalyst for the resolution of these types of issues,” said Scott Gautier, chair of the corporate restructuring and bankruptcy group at Robins Kaplan LLP. Gautier is also not currently involved in the Neiman’s cases and spoke generally.

“With the important negotiations resolving the value of the claim, and to which creditor group that value should be allocated,” he said.

Neiman’s bankruptcy proceedings are taking place in bankruptcy court in Houston. The retailer, which opened its first store in 1907 in Dallas, now has some 67 stores around the country, including the Bergdorf Goodman stores and Last Call units that sell discounted and clearance items.

In its filings last week, the company also said it runs the “largest luxury e-commerce platform in the world” and that e-commerce accounts for about a third of the retailer’s annual sales, according to court filings. NMG’s more than 13,200 employees include some 9,545 full-time employees and about 3,656 part-time employees, most of whom it said it furloughed in April as a result of the pandemic.

Despite the retailer’s substantial debt load, the company was on a sustainable path, claimed the first day declaration by Neiman’s chief restructuring officer Mark Weinsten, managing director at consulting firm Berkeley Research Group LLC Weinsten.

If not for the COVID-19 crisis, the company’s restructuring last year put it “on track” to meet its budget, earnings and savings targets for the fiscal year ending in July 2020, Weinsten argued in his declaration.