Neiman Marcus could be first major US department store to file for bankruptcy after 14k staffers furloughed
According to reports, Neiman Marcus Group could file for bankruptcy this week, becoming the first major United States department store to do so from the recession stemming from the coronavirus pandemic. The pandemic has forced the closure of all 43 of its Neiman Marcus locations, nearly two dozen Last Call stories and its two Bergdorf Goodman stores in New York.
According to Reuters' sources, the company is in the final stages of negotiating a loan with its creditors totaling hundreds of millions of dollars to sustain some of its operations during bankruptcy proceedings.
Last week, it was reported that Neiman Marcus Group skipped a bond payment due this week to Marble Ridge Capital LP. “Sadly, Neiman’s financial distress will come as no surprise to anyone,” Marble Ridge wrote in a letter seen by Reuters. By April 15, Neiman Marcus owed $5.6 million in interest due on bonds and will be due $115 million in interest on another set of bonds by April 25.
The company's borrowings total roughly $4.8 billion according to Reuters. Some of this debt comes from its $6 billion leveraged buyouts by its owners, private equity firm Ares Management Corp and Canada Pension Plan Investment Board (CPPIB).
Last week, Standard & Poor downgraded the company to a CCC-rating "on headwinds from the coronavirus and [an] unsustainable capital structure. A CCC rating represents an extremely high-risk bond or investment and banks are not allowed to invest in CCC rated bonds. The rating represents "junk" territory.
At the end of March, Neiman Marcus had said it would furlough most of its 14,000 employees from April 5 to 30 while it continues healthcare benefits. Even those staying on staff were announced to be taking pay cuts, including CEO Geoffroy van Raemdonck, who waived 100% of his salary in April. Others reporting to him were also reported to be waiving a "significant amount" of their salaries.
Once it files for bankruptcy, Neiman Marcus could attract interest from potential suitors seeking to pick up the company or some of its assets on the cheap, according to sources. The report also notes that Standard & Poor's analysts said, "In light of the significant headwinds stemming from the coronavirus pandemic and our expectation for a US recession this year, we believe the company’s prospects for a turnaround are increasingly low."
“We continue to view its capital structure as unsustainable,” the analysts added. They said the move reflected the “elevated potential” of a debt restructuring.
Last week, WWD reported that Neiman Marcus has more than $100 million in interest payments due this month and said it’s already notified lenders that it won’t be able to pay. “I know Neiman’s is actively working on a debtor-in-possession loan for bankruptcy soon,” a source told the newspaper.
The first Neiman Marcus store opened in Dallas, Texas, in 1907. In spite of the Panic of 1907 — a three-week financial crisis when the New York Stock Exchange fell almost 50 percent from its peak the previous year — setting in only a few weeks after the first store opened, it was successful.