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 (OTC: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 (NYSE:TSLX) 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.

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