On May 7, 2020, Neiman Marcus announced that it had voluntarily begun bankruptcy proceedings in the US Bankruptcy Court for the Southern District of Texas. This move makes the company the first US department-store retailer to file for bankruptcy amid the ongoing coronavirus crisis.

Neiman Marcus Enters Into a Restructuring Support Agreement

The company entered into a binding RSA with over two-thirds of its creditors. This move allows Neiman Marcus to undergo financial restructuring to substantially reduce debt and interest payments while supporting continued operations during the coronavirus pandemic and beyond.

The company reported that it secured a total of $1.425 billion from its creditors, which comprises DIP financing of $675 million to enable business continuity throughout the proceedings, plus a $750 million exit-financing package that will allow Neiman Marcus to “fully refinance the DIP financing” and provide additional liquidity for the company.

The Company Expects To Emerge from Bankruptcy Proceedings in Fall 2020

The bankruptcy proceedings are supported by the company’s existing shareholders. In its press release, Neiman Marcus reported that upon its emergence from Chapter 11 proceedings, its planned capital structure will be long-dated, with no near-term maturities and to eliminate approximately $4 billion of its existing debt. The creditors participating in the RSA will become the majority owners of the company.

Mytheresa, the company’s online shopping destination for children, men and women, is not part of the Chapter 11 proceedings and will continue to operate independently.

The Coronavirus Expedited Neiman Marcus’ Bankruptcy

With consumer tastes becoming more fickle and unpredictable, combined with the fast cycle of fashion, the luxury market is a challenging sector. Neiman Marcus has been struggling in recent years, along with other luxury and accessible luxury department stores: Barneys went out of business earlier this year; Lord and Taylor closed its New York City flagship last year; and Saks Fifth Avenue closed its downtown New York City location last year. These are not positive signs for luxury/accessible luxury department stores.

Neiman Marcus has seen decreasing revenues in the past few years. In the retailer’s most recent public disclosure of its financials, on April 27, 2019, it reported a 4.1% year-over-year decline in revenues.

Most recently, Neiman Marcus has been focused on a turnaround plan. For example, in March 2020, the company announced plans to close its Last Call off-price business to focus on its full-price consumer—eliminating 750 positions in total and closing 22 Last Call stores by October 2020.

Unfortunately, the coronavirus pandemic hit in 2020, at a time when Neiman Marcus was already feeling pressured. The pandemic caused physical stores to close, which exacerbated reduced revenues. With approximately 30% of its retail sales online, Neiman Marcus was not able to sufficiently fund its bills, with its revenue stream “locked up” due to the pandemic. On April 15, 2020, the company reportedly missed a $5.7 million interest payment to some of its bond holders, according to a letter from investment firm Marble Ridge Capital LP.

The question is, will Neiman Marcus survive post bankruptcy?