A new lawsuit has emerged over the transfer of The Neiman Marcus Group Inc.’s subsidiary Mytheresa.
In New York state court on Thursday, UMB Bank NA sued Ares Partners Holdco LLC and its related entities. UMB Bank, a trustee representing a group of Neiman Marcus bondholders, argued that Mytheresa’s transfer to The Neiman Marcus Group Inc. — which is partly owned by private equity arm Ares Management — put Mytheresa further out of reach of creditors.
The lawsuit was filed on the same day that the court dismissed UMB Bank’s previous lawsuit, which was filed in August. In response to that prior lawsuit, Neiman Marcus and its private equity owner claimed that the loan documents governing the bonds contain waivers that prevent the trustee from filing suit. They also said at the time that UMB Bank could not bring forth a suit before an event of default.
However, Thursday’s lawsuit comes after an event of default; two months ago, the now-bankrupt Neiman Marcus defaulted on its interest payments to unsecured creditors. In the filing, UMB Bank wrote that, a week after filing for Chapter 11 protection on May 7, Neiman Marcus’ “missed interest payment ripened into an event of default, which is continuing, under the indentures.” The lawsuit names only Ares’ companies; Neiman Marcus’ bankruptcy proceedings have put a pause on legal action against the retailer and related entities.
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In a statement to FN, an Ares Management spokesperson said, “The latest suit filed by UMB makes the exact same claims that were just dismissed for lack of standing, which continue to be entirely without merit.”
Mytheresa — the digital arm of Munich fashion store Theresa, founded by Christoph and Susanne Botschen in 1987 — was acquired by Neiman Marcus Group Ltd. in 2014. Four years later, Neiman Marcus Group transferred the subsidiary to parent holding company The Neiman Marcus Group Inc., which is owned by Ares Management and the Canada Pension Plan Investment Board.
Upon its transfer from Neiman Marcus Group Ltd. to The Neiman Marcus Group Inc., Mytheresa was not subject to the same rules under the credit agreement as the other units of the company. Opposing creditors had argued that the shuffling of Mytheresa cost Neiman Marcus Group Ltd. its “billion-dollar crown-jewel asset” — particularly as the department store chain was facing a high risk of default due to debt stemming from the private equity buyout. (Neiman Marcus owed about $6 billion after its 2013 purchase by Ares and the CPPIB.)
The goal of the transfer, experts had speculated, was to cushion Mytheresa in the event of a bankruptcy. In a statement on the same day that Neiman Marcus filed for Chapter 11 protection, the Germany-born luxury online retailer clarified that it was not part of those proceedings and continues to operate as an independent business.
“As in the past years, Mytheresa will continue to operate successfully as a standalone entity — legally, financially and operationally,” CEO Michael Kliger said. “Of course we are facing difficult times, but we can already see that being an online luxury retailer gives us resilience and the trend to e-commerce will be accelerated by this [coronavirus] crisis.”
The COVID-19 pandemic forced the closures of Neiman, Last Call and Bergdorf Goodman banners over the course of several weeks. Following widespread bankruptcy speculation, the debt-saddled company went bankrupt but managed to secure $675 million in financing from creditors to continue operations during the proceedings.