Credit Default Swap Market Indicates a Greater Than 80% Probability of Default by Neiman Marcus Within 5 Years, According to Recent Bloomberg Estimates, Marble Ridge Reports

NEW YORK, March 4, 2019 /PRNewswire/ -- Marble Ridge Capital LP, a value-oriented distressed debt investment firm, today reported that it has sent the following letter to the Board of Directors of the Neiman Marcus Group Ltd LLC in light of the Credit Default Swap Market now indicating a greater than 80% probability of default immediately following Neiman's March 1^st announcement of its "Final Proposal," according to recent Bloomberg estimates.

March 4, 2019

RE:      The Devil's Bargain

Dear Members of the Board of Directors,

Given your improper actions to date, we were not surprised last Friday to see that Neiman's latest "Final Company Proposal" continues to strip several hundred million dollars of value from the Neiman Marcus Group LTD LLC (the "Company") for the benefit of the out-of-money Sponsors.  In our letter dated March 1, we again cautioned the Board that all of the valuable MyTheresa assets must be returned to the Company for there to be a fair and equitable restructuring for the benefit of all stakeholders.

Immediately following the release of the latest "Final Company Proposal", the market price of the Neiman Marcus 5-Year Credit Default Swaps ("CDS") more than doubled, implying a greater than 80% probability of default by Neiman Marcus over 5 years according to Bloomberg estimates – an increase of 60% from the previous day.

The apparent reason for this dramatic increase, reflecting the market's belief that the likelihood of Neiman Marcus defaulting has recently skyrocketed, relates to a particular provision included by the Company in its so-called "Final Company Proposal". That provision will make The Neiman Marcus Group LLC a co-issuer for the first time for the newly-issued debt of the Company.

With this provision, the Company is enabling securities holders (including current creditors who hold CDS) to benefit for the first time from the Company's failure at some point in the future. This seemingly innocuous provision is a spectacular "Devil's Bargain," presumably struck by the Company at the behest of the Sponsors to create a massive windfall for a subset of creditors betting against the Company, in exchange for a release for the Sponsors from all claims against them.

The consequences to the Company and its stakeholders of creating a market betting on its demise are entirely foreseeable to the Sponsors.

We will not stand idly by as the Sponsors use their leverage over the Company to retain the valuable MyTheresa assets in exchange for enabling the activities of speculators in the derivatives market.

The Sponsors as well as any party complicit in their scheme are mistaken if they believe they can act with impunity.

The recent Windstream litigation and its resultant bankruptcy filing last week have provided yet another reminder that the unregulated CDS Market can be used to force companies into bankruptcy. As an erudite practitioner observed of that prescient case, "it is one thing to say I'm going to buy insurance on my neighbor's house and it is another to burn it down. It is a third thing to then collect money on that insurance and it's a very, very different thing to then be welcomed at my neighbor's table." And, it's a very, very, very different thing, as is the case here, for your neighbor to host the open-house in the first place to sell the "arsonists" their insurance!

This is a no-win situation for the Company and its stakeholders, who will be left to pick up the pieces.

In the case of Windstream, at least an independent fiduciary has the ability to use the Bankruptcy Court's equitable powers to investigate the role the derivatives market played, the conduct of the parties involved and hold the appropriate parties accountable for their misdeeds.

We see no legitimate reason for Neiman to suffer a similar fate as Windstream.

The Board must take corrective action and undo this Devil's Bargain to ensure that no one stands to benefit from the Company's failure.

The Board must return 100% of the valuable MyTheresa assets to the Company.

The Board must appoint a separate and independent governing body that is capable of making independent decisions affecting the Company in order to remove the pervasive conflicts of interest that have enabled a massive stripping of assets and this most recent Devil's Bargain.

Only these corrective actions can resolve the existential risk that the Sponsors and their conflicted counsel pose for the Company. We are prepared to promptly withdraw our Amended Petition nunc pro tunc once these corrective actions have been taken.

For the record, we do not hold, nor have we ever held, any Credit Default Swaps betting against Neiman Marcus or any of its affiliates.

We will continue to take all necessary actions to protect our rights, including our right to seek all remedies based on this latest gambit, all of which are expressly preserved. 

Respectfully,

Daniel Kamensky
MARBLE RIDGE CAPITAL LP

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SOURCE Marble Ridge Capital LP