NEW YORK, April 16, 2020 /PRNewswire/ -- Marble Ridge Capital LP, a value-oriented distressed debt investment firm, today reported it has sent the following letter to the Board of Directors of Neiman Marcus Group.
April 16, 2020
RE: Company's Default in Payment of Interest
Dear Members of the Board of Directors,
As you know, Neiman Marcus Group LTD LLC (the "Company") failed to make its payment of interest due on Bonds owned by Marble Ridge. Neiman Marcus is now in default on its payment obligations and can no longer hide behind its protestations to the contrary. Accordingly, please be advised that Marble Ridge will take all necessary actions to protect its rights, including its right to seek all remedies, all of which are expressly preserved.
The improper actions taken to date by Neiman Marcus, its Board of Directors and the Company's conflicted legal counsel have made the Company's failure to meet its financial obligations entirely foreseeable and unavoidable. By enabling and allowing the improper transfer of the Company's crown-jewel, billion-dollar MyTheresa asset to the out-of-money Sponsors for no consideration, you have left a carcass of a company for the remaining stakeholders and have put both Neiman's storied franchise and thousands of jobs at risk.
Over the past 18 months, Marble Ridge has repeatedly urged you to return the MyTheresa asset to the Company and for there to be a fair and equitable restructuring for the benefit of all stakeholders. Today, the consequences of your actions are undeniable.
Sadly, Neiman's financial distress will come as no surprise to anyone.
Last year we informed you that we had retained Goldin Associates, LLC to advise on financial and valuation issues in connection with our analysis of Neiman Marcus. At the time the MyTheresa assets were improperly stripped from the Company in 2018, it was over 10x levered, far in excess of its peers (which were levered closer to 4x). To make matters worse, last year's debt restructuring increased the Company's already unsustainable annual interest expense by more than $100 million leaving a fraction of adjusted EBITDA for any capital expenditures, principal repayment, taxes or one-time charges. The Company's forecast of rapid EBITDA expansion last year was beyond fanciful and defied logic. The Company would have had to achieve nearly a 14% EBITDA margin (or nearly twice the average margin of its peers) in order to achieve its $700 million EBITDA target, assuming it could maintain flat revenues. As we communicated to you then, Goldin's analysis also showed that even if the Company were to reach its pie-in-the-sky profit targets (which it didn't, even in a comparatively robust 2019), its debt would still likely far exceed the fair value of its assets (based on peer valuations). Indeed, after the Company announced its debt restructuring last year, the market price of the Neiman Marcus 5-Year Credit Default Swaps implied a greater than 80% probability of default by Neiman Marcus over 5 years according to Bloomberg estimates.
We have also communicated to you our view that neither the Company nor any of its purported "independent" surrogates were capable of serving as an independent fiduciary in the context of a bankruptcy or similar proceeding given your and your counsel's pervasive and continuing pattern of bad faith and substantial conflicts of interest in which you and the equity sponsors have been engaged. Only an independent fiduciary can properly investigate the conduct of the parties involved and hold the appropriate parties accountable for their misdeeds.
Finally, we advised you that any distribution or subsequent sale or transfer of the MyTheresa assets would not shield the Sponsors, the Company or any subsequent transferee from potential liability.
The Sponsors as well as any party complicit in their scheme are mistaken if they believe they can act with impunity.
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MARBLE RIDGE CAPITAL LP
/S/ Daniel Kamensky
SOURCE Marble Ridge Capital LP