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Law360 (May 8, 2020, 7:57 PM EDT) -- Bankrupt retail icon Neiman Marcus received court approval Friday in Texas to tap into $275 million of post-petition loans as it seeks to restructure more than $4 billion of secured debt in the midst of the worldwide COVID-19 outbreak.
During a first-day hearing conducted via telephone and video conferencing, U.S. Bankruptcy Judge David R. Jones said the debtor's deal with existing term loan lenders and noteholders to provide $675 million in new money debtor-in-possession financing was supported by the facts of the case. He determined the fees that come with the lending were justified given the complexity and size of the facility.
"I find the deal as structured is the best alternative for the debtor. It is expensive money. We all wish it was less," Judge Jones said in approving the interim draw under the DIP. "The only thing worse than having expensive money is not having a going concern, and not having a business that employs thousands of people and serves society."
The loans will help stabilize Neiman Marcus' business after it was forced to close all of its physical retail locations as local, state and federal governments imposed business restrictions to curb the spread of the coronavirus beginning in March, debtor attorney Chad J. Husnick of Kirkland & Ellis LLP told the court. The shutdowns also forced the debtor to furlough most of its 13,000 employees and to significantly reduce salaries for the remaining employees, he said.
Husnick argued the financing was critical to give Neiman Marcus an opportunity to restart its operations when appropriate and execute transactions that will eliminate more than $4 billion of the company's secured debt.
"It cannot be understated that it is important that we have the DIP not only so we can continue to operate in the ordinary course, which is admittedly at a decreased level during the shutdown, but also so that we can reopen on the schedule we've set forth," he said.
He said another $250 million will become available when the DIP loan is approved on a final basis, along with a further $150 million that will be available no sooner than 120 days after the petition date. Neiman Marcus anticipates having its stores reopened by early August, Husnick said, by which time as much as $350 million of the DIP cash will have been spent.
The COVID-19 pandemic came at a time when Neiman Marcus was reaping the benefits of a 2019 out-of-court debt restructuring that provided new capital to the company while extending maturity dates for most of its debt, attorney Matthew D. Cavenaugh of Jackson Walker LLP told the court. He said the outbreak stopped all of the progress the company had made in recent months, slashing its revenue by 65% over last year's figures.
Neiman Marcus' e-commerce platform, which brought in $60 million of revenue, is the only reason that sales figures didn't drop to zero after the shutdowns went into effect, Cavenaugh said.
The court also approved a typical slate of first-day relief requested by Neiman Marcus, including motions asking to pay employee wages, critical vendor obligations and tax and insurance obligations.
Neiman Marcus filed for bankruptcy protection Thursday after weeks of anticipation as the impact of the COVID-19 outbreak ravaged the retail sector. It's filing came in the same week that clothing retailer J.Crew sought Chapter 11 protection and as rumors of the imminent bankruptcy of J.C. Penney reached a crescendo.
Filing along with multiple affiliates, Neiman Marcus hit Chapter 11 with about $5 billion in debt, including $749 million owed on a senior secured asset-based revolving credit facility, roughly $2.2 billion owed in secured term loans, $561.7 million in principal outstanding on second-lien notes, and $1.2 billion owed on third-lien notes.
The company, which opened in 1907 with a store in Dallas, has since grown to 67 stores across the United States, including Neiman Marcus and Bergdorf Goodman locations and an e-commerce business, the declaration said.
The retailer came to court with a restructuring support agreement with a majority of its secured lenders to complete a debt-for-equity swap that will wipe out more than $4 billion of its debt and see term loan lenders and noteholders provide a $750 million exit facility that will refinance the $675 million DIP facility and provide new liquidity upon its emergence from bankruptcy.
The debtors are represented by Anup Sathy, Chad J. Husnick and Matthew C. Fagen of Kirkland & Ellis LLP and Matthew D. Cavenaugh, Jennifer F. Wertz, Kristhy M. Peguero and Veronica A. Polnick of Jackson Walker LLP.
The independent managers of Neiman Marcus are represented by Todd Cosenza, Brian Lennon and Jennifer Hardy of Willkie Farr & Gallagher.
The case is In Re: Neiman Marcus Group Ltd. LLC, case number 1:20-bk-32519, in the U.S. Bankruptcy Court for the Southern District Of Texas Houston Division.
--Additional reporting by Rose Krebs. Editing by Alanna Weissman.
Update: This story has been updated with additional counsel information.
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