Neiman Marcus Creditors May Benefit as Store Explores MyTheresa Options

(Bloomberg) -- Neiman Marcus Group Inc.'s decision to explore strategic alternatives for its online MyTheresa business may prove a boon for bondholders as the company works to clean up its debt-plagued balance sheet.

Neiman said on Tuesday that its parent company was evaluating options for MyTheresa, which has been at the center of a dispute with creditors since the unit was effectively transferred out of the reach of bondholders in September. Neiman has not made a decision on a specific transaction or time frame with regard to MyTheresa, the company said in a filing.

The announcement comes on the heels of Neiman's offer to exchange a series of notes due in 2021 as part of a larger debt transaction meant to push out maturities and provide more time for the struggling retailer to turn itself around. As part of the agreement, Neiman would swap its current borrowings for new obligations as well as a partial claim on MyTheresa's common equity.

“If you're an unsecured bondholder that agrees to the exchange offer, you may recoup value that you didn't have before,” said Anthony Canale, global head of research for Covenant Review. “Before all you had was a lawsuit challenging the removal of that asset, but after the exchange is complete you are participating in the value that is coming out of MyTheresa.”

A representative for Neiman Marcus declined to comment.

Asset Shift

The Dallas-based company faced pushback from creditors last year after it shuffled MyTheresa assets to a unit under the company's ultimate parent. As a result, Neiman's creditors no longer have an equity claim to that asset backing their debt. Neiman was sued for the transfer by creditor Marble Ridge Capital before the case was eventually dropped in Texas state court.

“The devil is going to be in the details,” Canale said. “Right now the company is just letting people know they are thinking about doing something with MyTheresa. However the transaction shakes out will be determined at a later date, and there are so many possibilities of where it could go.”

Neiman continues to face pushback from Marble Ridge, which criticized Tuesday's announcement and called it the continuation of a scheme to place valuable assets beyond creditors' grasp.

Under the terms of the exchange offer, around 50 percent of MyTheresa common equity is pledged to new third-lien notes on a first-lien basis. In the event of a sale or monetization of the business, bondholders could get paid down at par, but receive no upside beyond their holdings, Canale said.

MyTheresa -- the German online unit that specializes in upscale women's clothing -- had $312 million in sales for the nine-month period ended March 31, the company said Tuesday.

Selling MyTheresa would yield the best outcome for creditors, according to Bloomberg Intelligence's Noel Hebert, who wrote Neiman may be able to fetch at least $500 million for the unit, a value that would facilitate “modest debt reduction.”

“The best value is to monetize the business if you can find a willing buyer,” Hebert said. “We are in dotcom 2.0 given the new-tech valuations, so versus the capital commitment to make the business material -- both in revenue, but especially from an earnings perspective, it would better to find a third party home.”

To contact the reporter on this story: Katherine Doherty in New York at kdoherty23@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Boris Korby, Nikolaj Gammeltoft

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