Neiman Marcus Group is preparing to seek bankruptcy protection as soon as this week, becoming the first major U.S. department store operator to succumb to the economic fallout from the coronavirus outbreak, people familiar with the matter said.
The debt-laden Dallas-based company has been left with few options after the pandemic forced it to temporarily shut all 43 of its Neiman Marcus locations, roughly two dozen Last Call stores and its two Bergdorf Goodman stores in New York.
Neiman Marcus is in the final stages of negotiating a loan with its creditors totaling hundreds of millions of dollars, which would sustain some of its operations during bankruptcy proceedings, according to the sources. It has also furloughed many of its roughly 14,000 employees.
The bankruptcy filing could come within days, though the timing could slip, the sources said. Neiman Marcus skipped millions of dollars in debt payments last week, including one that only gave the company a few days to avoid a default.
Neiman Marcus’ borrowings total about $4.8 billion, according to credit ratings firm Standard & Poor’s. Some of this debt is the legacy of its $6 billion leveraged buyout in 2013 by its owners, private equity firm Ares Management Corp and Canada Pension Plan Investment Board (CPPIB).
The sources requested anonymity because the bankruptcy preparations are confidential. Neiman Marcus and Ares declined to comment, while CPPIB representatives did not immediately respond to requests for comment.
Other department store operators that have also had to close their stores are battling to avoid Neiman Marcus’ fate. Macy’s Inc and Nordstrom Inc have been rushing to secure new financing, such as by borrowing against some of their real estate. J.C. Penney Co Inc is contemplating a bankruptcy filing as a way to rework its unsustainable finances and save money on looming debt payments, Reuters reported last week.
A bankruptcy filing would be a grim milestone that Neiman Marcus has spent the last few years trying to avoid. It pushed out due dates on its financial obligations last year in a restructuring deal with some creditors, though the transactions added to Neiman Marcus’ interest expenses.
A trustee for some of the company’s bondholders sued Neiman Marcus last year, claiming the firm and its owners robbed investors of the value of its luxury e-commerce site MyTheresa by moving the business beyond the reach of creditors in a corporate reshuffling. Neiman maintains its actions were proper.
“In light of the significant headwinds stemming from the coronavirus pandemic and our expectation for a U.S. recession this year, we believe the company’s prospects for a turnaround are increasingly low,” Standard & Poor’s analysts wrote in a note last week.