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NEIMAN MARCUS: Luxury Retailer in Chapter 11 Due to Pandemic

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Neiman Marcus Group LTD LLC, operator of the high-end Neiman Marcus, Neiman Marcus Last Call, and Bergdorf Goodman stores, has sought Chapter 11 protection due to the unprecedented disruption caused by the COVID-19 pandemic.

For over 100 years, the Debtors have been the leader in retail luxury, innovation, and customer experiences. Since opening in 1907 with just one store in Dallas, Texas, the Debtors have strategically grown to 67 stores across the United States, including their marquee luxury Neiman Marcus and Bergdorf Goodman locations, Horchow e-commerce website, and off-price Last Call stores.

NMG operates the largest luxury e-commerce platform in the world. More than 30% of NMG’s total annual revenue is from online sales. The Debtors’ non-Debtor affiliates own and operate a single store under the THERESA brand and an commerce platform under the Mytheresa brand.

As of the Petition Date, the Debtors have funded-debt obligations of approximately $5.5 billion. In 2019, NMG de-stressed its capital structure in a highly consensual amend-and-extend transaction with holders of over 91% of former unsecured notes and holders of over 99% of existing term loans. This transaction afforded NMG meaningful runway and flexibility to meet its earnings targets and implement new cost-savings and business initiatives to address adverse macro trends in the retail industry, such as a general transition from brick-and-mortar to online retail channels, and a shift in consumer demographics.

Prior to February 2020, NMG was on track to meet all of its budget, earnings, and savings targets for the fiscal year ending in July 2020. NMG also posted comparable store sales growth for seven of the ten previous quarters and significantly expanded gross margins during the last holiday season in line with its goal of profitable and sustainable growth.

Covid-19 Pandemic

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. In response to COVID-19, national, state, and local governments in the United States and throughout the world imposed quarantines, social distancing protocols, and shelter-in-place orders.

To protect the health and safety of NMG’s customers and employees, on March 18, 2020, NMG voluntarily closed all of its stores and dramatically reduced supply chain operations. These unprecedented events have severely impacted NMG’s business and liquidity.

To navigate these market conditions, NMG knew it needed to proactively address its liquidity position and capital structure. NMG engaged Kirkland & Ellis LLP as restructuring counsel and Lazard Freres & Co. LLC as investment banker to work with NMG and BRG to analyze financing needs and consider NMG’s capital structure alternatives. NMG encouraged its term loan lenders and noteholders to organize and retain advisors.

An ad hoc group of lenders who collectively hold approximately 78% of NMG’s term loan debt and 78% of the Company’s debentures (the “Term Loan Lender Group”) quickly organized and retained Wachtell, Lipton, Rosen & Katz as counsel and Ducera Partners LLC as investment banker to represent the Term Loan Lender Group in negotiations with NMG.

Shortly thereafter, an ad hoc group of holders of approximately 99% of NMG’s Second Lien Notes and approximately 70% of NMG’s Third Lien Notes also organized and retained Paul, Weiss, Rifkind, Wharton & Garrison LLP as counsel and Houlihan Lokey, Inc. to represent the Noteholder Group in negotiations with NMG.

Following several weeks of extensive, arm’s length negotiations, NMG and the Term Loan Lender Group were extremely close to reaching agreement on a comprehensive, pre-negotiated restructuring that would substantially deleverage the Debtors’ balance sheet, a fully-backstopped $625 million postpetition financing facility (the “DIP Facility”), and a fully-backstopped $750 million exit facility (the “Exit Facility”).

To further the Debtors’ evaluation of their capital structure alternatives and negotiations with their stakeholders, on April 28, 2020, Mariposa Intermediate Holdings LLC, the Debtor parent of NMG LTD LLC, appointed disinterested manager Anthony Horton to its Board of Managers, and NMG LTD LLC appointed disinterested managers Marc Beilinson and Scott Vogel to its Board of Managers. Holdings has retained Katten Muchin Rosenman LLP as legal counsel to advise Mr. Horton with respect to certain matters delegated to Mr. Horton. NMG LTD LLC has retained Willkie Farr & Gallagher LLP as legal counsel and is retaining a financial advisor to advise Mr. Beilinson and Mr. Vogel with respect to certain matters delegated to Mr. Beilinson and Mr. Vogel. Around this time, NMG received a modified restructuring proposal from the Noteholder Group. NMG believed that further stakeholder support for its restructuring plans would provide significant additional value to its stakeholders and actively pursued a tri-party negotiation with the Term Loan Lender Group and Noteholder Group to achieve more consensus.

NMG’s efforts to garner additional support for its restructuring process have borne fruit. NMG’s proposed restructuring pursuant to its restructuring support agreement will substantially deleverage NMG’s balance sheet and allow the Debtors to emerge from these cases as a stronger, better-capitalized enterprise positioned for sustained success. The Restructuring Support Agreement has a remarkable level of support throughout the Debtors’ capital structure: holders of approximately:

78% of the Debtors’ first lien term loan debt,
99% of the Debtors’ second lien notes debt,
70% of the Debtors’ third lien notes debt,
78% of the Debtors’ debentures, and
100% of the direct equity ownership in the Debtors

have committed to support the Debtors’ restructuring. Even more support is anticipated in the coming days as parties contemplate signing joinders.

The Restructuring Support Agreement is tied to the now-$675 million DIP Facility and the $750 million Exit Facility, each of which is backstopped by members of the Term Loan Lender Group (excluding holders of 2028 Debentures) and members of the Noteholder Group. The Debtors believe that the Restructuring Support Agreement puts the Debtors on the best path to maximize stakeholder recoveries and ensure that NMG can efficiently emerge from chapter 11 and continue to fulfill its promise of leading in luxury, innovation, and customer experiences.

Prepetition Capital Structure

As of the Petition Date, the Debtors’ capital structure consists of outstanding funded-debt obligations in the aggregate principal amount of approximately $5.1 billion.

The Debtors’ significant funded debt obligations include:

(a) a $900.0 million senior secured asset-based revolving credit facility (the “Asset-Based Revolving Credit Facility”), of which $749.0 million has been drawn;

(b) a $100.0 million last-out term loan facility (the “FILO Facility”);

(c) a $2,253.1 million senior secured term loan facility(the “Term Loan Facility”), which is comprised of $12.6 million outstanding of stub term loans with the original maturity date of October 25, 2020, $1,193.8 million outstanding of term loans with an extended maturity date of October 25, 2023, which pay interest entirely in cash, and $1,046.7 million outstanding of term loans with an extended maturity date of October 25, 2023,which pay interest partially in cash and partially in kind;

(d) $561.7 million aggregate principal amount of 14.000% Second Lien Notes due 2024 (the ” Second Lien Notes”);

(e) $730.5 million aggregate principal amount of 8.000% Senior Secured Third Lien Notes due 2024 (the “8.000% Third Lien Notes”);

(f) $497.8 million aggregate principal amount of 8.750% Senior Secured Third Lien Notes due 2024 (the “8.750% Third Lien Notes” and, together with the 8.000% Third Lien Notes, the “Third Lien Notes”);

(g) $80.7 million aggregate principal amount of 8.000% Senior Cash Pay Notes due 2021 (the “Unsecured Cash Pay Notes”);

(h) $56.6 million aggregate principal amount of 8.750%/9.500% Senior PIK Toggle Notes due 2021 (the “Unsecured PIK Toggle Notes” and, together with the Unsecured Cash Pay Notes, the “Unsecured Notes”); and

(i) $125.0 million aggregate principal amount of 7.125% Senior Debentures due 2028.

About Neiman Marcus Group

Neiman Marcus Group is a luxury, multi-branded, omni-channel fashion retailer conducting integrated store and online operations under the Neiman Marcus, Bergdorf Goodman, Neiman Marcus Last Call, and Horchow brand names.

The company was acquired by private equity firm Ares Management and the Canada Pension Plan Investment Board, which bought it in 2013 for $6 billion.

Weeks after being forced to temporarily shut stores due to the Covid-19 pandemic, Neiman Marcus Group and 23 affiliates sought Chapter 11 protection (Bankr. S.D. Tex. Lead Case No. 20-32519) on May 7, 2020, after reaching an agreement with a significant majority of our creditors to undergo a financial restructuring that will substantially reduce the Company’s debt load, and provide access to considerable financing to ensure business continuity.

Kirkland & Ellis LLP is serving as legal counsel to the Company, Lazard Ltd. is serving as the Company’s investment banker, and Berkeley Research Group is serving as the Company’s financial advisor. Stretto is the claims agent, maintaining the page https://cases.stretto.com/NMG

The Extended Term Loan Lenders are represented by Wachtell, Lipton, Rosen & Katz as legal counsel, and Ducera Partners LLC as investment banker.

The Noteholders are represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP as legal counsel and Houlihan Lokey as investment banker.

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