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Neiman Marcus’ bankruptcy exit has been approved, and now the big second chance begins

The retailer completed its reorganization in four months during a pandemic.

Neiman Marcus finally has the new start it’s needed for years.

The Dallas-based luxury retailer’s reorganization plan was approved by a U.S. Bankruptcy Court on Friday, saving the storied retailer from its unsustainable debt and giving it a fighting chance in a constantly changing retail environment that has been complicated by the pandemic.

The reorganization was completed in four months and on schedule, which will allow the company to pay bonuses to its C-suite and key employees. Neiman Marcus will emerge with new owners, having shed $4 billion in debt.

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By getting rid of almost $300 million in annual interest payments, the retailer will be able to focus on becoming a profitable business. It will have seven fewer full-line stores but will have the tools to grow back to its previous size and exceed it, CEO Geoffroy van Raemdonck said in an interview Friday.

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“I’m very confident if you look back pre-COVID-19, we had positive comparable-sales increases in seven of our eight quarters, margins were improving, and we were focused on a new customer,” van Raemdonck said. “Pre-COVID, we had traction.”

After the pandemic hit and closed stores, the employees, brands, vendors, creditors and new shareholders were supportive of the reorganization process, he said.

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“I’m amazed that we made it through this long summer with the pandemic and everything else. We’re so grateful for the support from our employees,” van Raemdonck said.

While the new company will be smaller, “what’s important is that we have a loyal base of customers and we can connect with them,” he said. “Size doesn’t matter; what matters is that we can achieve profitable and sustainable growth with our customers.”

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The company’s fresh start comes at a time when the pandemic is forcing all retailers to accelerate their transformations.

Retail analysts at Moody’s Investors Service forecast that online sales will continue to surge, topping 25% of total sales over the next five years. “That will force many companies to reduce expenses in order to offset the cost of supporting expanding demand for online shopping,” said Moody’s analyst Christina Boni.

Operators in malls will shrink their footprints by more than 20% because the U.S. market has had too many stores for too long, Moody’s said.

Neiman Marcus’ closure of seven full-line stores will leave Washington, D.C., and Boston, for example, with one store each. In Manhattan, the company is closing its Hudson Yards store, which has been open only since March 2019, and will focus its efforts on Bergdorf Goodman, which van Raemdonck said “is the beacon of luxury.”

He said luxury consumer spending has held up during the pandemic except for some predictable weaknesses, such as special-occasion dressing and suits.

Neiman Marcus exits bankruptcy with a $750 million term loan from a group led by Credit Suisse and $1.29 billion in other debt, down from $5.1 billion when it filed. The investment banking firm Lazard estimated the value of the company at $2.07 billion to $2.54 billion.

Secured lenders received 100% of their claims in the bankruptcy. The other claimants that qualify for payments will receive a range of 1.4 cents to 34.4 cents on the dollar.

Who is running the reorganized company?

Van Raemdonck’s team is in place, and 247 key employees will receive $18.95 million in bonuses that were confirmed on Friday.

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So far, three board members have been named: van Raemdonck, who has been CEO since 2018, and two women with extensive experience in retailing and brands.

  • Meka Millston-Shroff is a former chief customer experience officer at Bed Bath & Beyond who led the growth of Buy Buy Baby as president of that chain from 2007 to 2018.
  • Pauline Brown, a former North America chairman for LVMH Moët Hennessy-Louis Vuitton, served on the boards of L Capital and several LVMH subsidiaries, including Donna Karan, Marc Jacobs and Fresh Cosmetics. Brown was also on the board of the luxury e-commerce retailer Moda Operandi. She was a managing director at the private equity firm Carlyle Group and held several executive jobs at Estee Lauder Cos.

The new board will have seven members appointed by the new shareholders: the CEO; three members designated by Pacific Investment Management Co., or PIMCO; one director designated by Davidson Kempner Capital Management; one director named by Sixth Street Partners; and one independent director designated by a new equity holder.

Who owns Neiman Marcus?

The new owners of Neiman Marcus are huge asset managers and lenders.

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  • PIMCO is one of the largest asset management firms in the world. It manages $1.92 trillion in assets for central banks, sovereign wealth funds, pension funds, corporations, foundations and endowments, and individual investors.
  • Davidson Kempner Capital is a New York-based global hedge fund with $34 billion in assets under management. Davidson Kempner is often listed as a secured bondholder in debt-restructuring agreements, from Richard Branson’s Virgin Atlantic Airways bankruptcy, filed in August, to AMC Entertainment’s restructuring in July to stave off a Chapter 11 filing.
  • Sixth Street was created by TPG in 2009 as an investment platform dedicated to credit-related investments. TPG, which was one of Neiman Marcus’ private-equity owners who sold the company in 2013, separated from Sixth Street in May. Sixth Street operates independently, with $47 billion in assets under management.

Some retirees are left out

The hardest part of the process was the decision-making about laid-off employees and the loss of pension benefits by some retirees, van Raemdonck said.

The company’s defined-benefit pension plan that covers 10,600 current and former employees was not affected by the bankruptcy. But the new owners decided not to continue supplemental plans for 300 to 400 retirees and current employees. The supplemental plans are not protected by bankruptcy or pension law.

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Lawyers representing retirees told U.S. Bankruptcy Judge David Jones during the confirmation hearing that their clients had been surprised to discover their supplemental pension benefits were being discontinued and that they didn’t have time to respond by claim deadlines.

Marty Sosland of Butler Snow, who represents former CEO Karen Katz and other former top executives, negotiated with Neiman Marcus lawyers to allow a smoother process for all retirees. His clients have been hearing from former colleagues. Katz instructed Sosland to “make every effort to see that retirees were treated fairly.”

The company agreed to add the future benefits for all retirees to the claims schedules so that retirees will be part of the process without opting in. They can then accept their settlements or challenge them. The payout is still expected to be a fraction of their prior benefits and will take more than a year to settle.

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Twitter: @MariaHalkias

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