Neiman Marcus, one of the United States’ largest retailers is expected to file for bankruptcy as early as this week, according to reports stating that the COVID-19 pandemic has caused the retailer to default on tens of millions in bond payments.
The company has furloughed around 14,000 of its employees, and is expected to be one of the first major casualties for the retail sector in the aftermath of the pandemic.
Reuters is reporting that “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 sources.”
There have also been reports that Neiman Marcus received a five-day ‘grace period’ on a $72.9 million interest payment on the bonds that are maturing in 2024. “An additional $5.7 million in interest was also due on Wednesday on bonds maturing in 2021, and the company has a 30-day grace period for that,” writes Lauren Edmonds.
Sources close to the negotiations have told the press that Neiman Marcus “skipped” millions of dollars worth of debt payments last week, including one crucial payment that gave the company just a few days to avoid defaulting on its loans.
The official bankruptcy filing is expected to come sometime this week.
According to Standard & Poor’s data, Neiman Marcus has borrowed a total of $4.8 billion. “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),” writes Reuters.
A Standard & Poor’s analyst wrote last week that “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.”
“We continue to view its capital structure as unsustainable,” they added, moving Neiman Marcus’ credit rating into the company’s “junk” category, stating that the “elevated potential” of a debt restructuring deal with creditors.
The company has refused requests for comments, while CPPIB remained silent on the issue.
Neiman Marcus opened its first retail outlet in Dallas, Texas in 1907, owned by the Marcus and Neiman families a short time after they were offered - and rejected - an investment opportunity into an emerging company named Coca-Cola. By 1972, the company had acquired New York City’s Bergdorf Goodman, and fast became a staple of the high-class fashion world.
The company was slow to adapt to the world of online shopping and has struggled to compete with discount retail chains, and was usurped by luxury e-commerce companies like Yoox Net-A-Porter Group.
Other retailers like Macy’s Inc and Nordstrom Inc have reportedly been “rushing” to secure new financing deals, with some borrowing new capital against their real estate ownings. J.C. Penny Co is reportedly tossing up a bankruptcy filing to rework its finance model and save funds on its incoming debt payments.
Neiman Marcus’ CEO, Geoffroy van Raemdonck has previously issued a statement saying he will waive his salary, as well as ‘significant’ pay cuts for the executive team. “While these are the most difficult decisions to make, our focus is on ensuring our business is protected over the long-term so we can continue serving our associates and customers.”