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Neiman Marcus bondholder sues to undo transfer of retailer's European business, MyTheresa 

Dallas-based Neiman Marcus is struggling to refinance its debt while it strengthens its business.

A Neiman Marcus bondholder wants a Dallas court to appoint a receiver and force the luxury retailer to reverse a transfer to its private equity owners of its European division, which it estimates to be valued at up to $1 billion.

The lawsuit, filed by Marble Ridge Capital in Dallas County District Court, said the retailer's Munich, Germany-based MyTheresa unit was stripped from the "insolvent Neiman Marcus Group."  Marble Ridge said the transfer only benefits private equity owners Ares Management and the Canada Pension Plan Investment Board, which purchased Neiman Marcus in a $6 billion leveraged buyout in 2013.

Marble Ridge said the MyTheresa business could be used to satisfy claims of the retailer's creditors as it faces a difficult debt restructuring. The company recently ended debt negotiations without a resolution. 

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Two separate offers by bondholders and lenders — both rejected by the company — would have extended debt maturities by three years in return for liens or equity in MyTheresa, Neiman Marcus disclosed this month.  MyTheresa became an issue with creditors when it was moved under the parent company, Neiman Marcus Group, and effectively removed from debt restructuring talks. The company has said MyTheresa hasn't been restricted by or been a guarantor of any debt.

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The Dallas-based retailer said Monday that it "will defend itself vigorously against these false allegations" by Marble Ridge.

"Neiman Marcus is not and has never been in default, and is in full compliance with the terms of its debt agreements," the company said in an emailed statement.

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Neiman Marcus has said it has "ample runway to refinance with no near-term maturities." Last week, the company disclosed it has $620 million of cash and borrowings available. The company also noted it just completed five consecutive quarters of positive sales and adjusted earnings before interest, taxes and other items.

Ownership of European luxury retailer MyTheresa, which partnered with Victoria Beckham in...
Ownership of European luxury retailer MyTheresa, which partnered with Victoria Beckham in 2014 on a spring-summer collection, is a key sticking point between Neiman Marcus owners and bondholders.(Hannes Magerstaedt / Getty Images)

Neiman Marcus has substantial debt coming due in October 2020. If the company is unable to repay or refinance its credit, there are triggers that force the debt to mature three months early in July 2020, the lawsuit said.

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"A default under the revolver will set off a cascade of events leading to bankruptcy," Marble Ridge said.

"Because the company is insolvent, in a bankruptcy unsecured creditors will recover only a small fraction of the par value of the company obligations that they hold."

Debtwire reduced its recovery estimate from 43.7 percent to 31.6 percent after the transfer of MyTheresa occurred in September and Goldman Sachs published recovery estimates on company obligations of between 7 percent and 26 percent, according to Marble Ridge.

The lawsuit contends the purpose of transferring MyTheresa's ownership to the corporate parent was "to remove valuable assets from the company, where they could have been used to satisfy the claims of the company's creditors. Instead, as a result of the scheme, these assets have been placed beyond the reach of the company's creditors in order to hinder and delay creditor recovery."

Neiman Marcus' $4.91 billion in debt cost the company $307 million in interest payments in the past year. The debt stems from two leveraged buyouts since 2005. 

Marble Ridge said the leverage buyout sponsors are "looting" the company.

Twitter: @MariaHalkias