Please ensure Javascript is enabled for purposes of website accessibility

Neiman Marcus Is About to Become the First Department Store Casualty of COVID-19

By Rich Duprey – Apr 27, 2020 at 12:56PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

But hedge funds want it to sell itself instead of reorganizing.

High-end retailer Neiman Marcus Group is about to become the first department store to succumb to the coronavirus pandemic, with Reuters reporting it will file for bankruptcy as early as today.

However, while the chain is seeking to line up $600 million in financing to allow the company to reorganize, several private equity investors want Neiman Marcus to sell itself instead.

A close-up of a bankruptcy application.

Image source: Getty Images.

A battle over staying in business

The COVID-19 situation put many department stores already on financially shaky ground in an untenable position as the pandemic forced them to close all retail locations. Neiman Marcus shut its 43 locations, several dozen Last Call off-price outlets, and its two iconic Bergdorf Goodman stores. 

Last week, Lord & Taylor was reportedly considering joining Neiman Marcus and J.C. Penney (JCPN.Q) in seeking protection of the bankruptcy courts.

While bankruptcy is a major disaster for a company, it doesn't necessarily mean it will go out of business, as companies can often shed much of their debt and emerge in a presumably healthier position.

Neiman Marcus is said to be arranging a financing package with Pacific Investment Management, Davidson Kempner Capital Management, and a TPG Specialty Lending (TSLX -3.55%) unit that would allow it to continue operating as it worked through bankruptcy.

Yet hedge fund operators including Third Point Management and Mudrick Capital Management oppose the loan, proposing a $700 million debtor-in-possession (DIP) financing package that would require Neiman Marcus to first try to sell itself before reorganizing. DIP financing ensures those lenders are among the first to be paid back.

If no bidder emerges, only then would the retailer be allowed to reorganize. Neiman Marcus has been saddled with excessive debt after PE firms took the retailer private in 2013.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

TPG Specialty Lending, Inc. Stock Quote
TPG Specialty Lending, Inc.
TSLX
$16.32 (-3.55%) $0.60
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
JCPN.Q

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.