Relevant Documents:
Status Conference Order
Ares Statement
Debtors’ Response
At today’s status conference in the Neiman Marcus chapter 11 cases, Judge David Jones instructed the Neiman Marcus debtors and the official committee of unsecured creditors to immediately commence negotiations to resolve the UCC's
objections to the terms of the MyTheresa Series B preferred shares, which remain a stumbling block to consensus on the MyTheresa settlement and related plan
announced July 30. “I want you all to go fix this,” the judge said, and “get back to getting a commercial transaction done." Judge Jones set a further status conference for Monday, Aug. 24, at 6 p.m. ET and imposed a moratorium on discovery efforts until that time.
After addressing the UCC's issues, Judge Jones turned to the bid-rigging
allegations against former UCC co-chair Marble Ridge and its principal, Dan Kamensky. The judge asked Lenard Parkins of Parkins Lee & Rubio, counsel for Marble Ridge and Kamensky, if he has a view on how to proceed after the Office of the U.S. Trustee issued its preliminary report on the allegations. Parkins indicated that Kamensky has fully cooperated with the investigation, including sitting for a four-hour examination under oath, and no further evidence needs to be elicited. Judge Jones disagreed, telling Parkins that "I get to ask my own questions." Judge Jones also asked counsel for the UST whether the preliminary report has been forwarded to the U.S. Attorney for consideration of possible charges, but counsel responded that he was uncertain. The judge indicated that he would issue an order to show cause for further proceedings.
Earlier in the hearing, Richard Pachulski of Pachulski Stang, counsel for the UCC, and Matt Fagen of Kirkland and Ellis, counsel for the debtors, exchanged strong words over the Series B shares issue. Under the MyTheresa settlement, plan sponsors Ares and CPPIB would transfer 140 million Series B preferred shares in MyTheresa to general unsecured creditors in exchange for a release of
claims to avoid the 2018 MyTheresa spinoff as a fraudulent transfer. Pachulski told Judge Jones that without the additional protections for the Series B shares sought by the UCC, the value of those shares would be “illusory.” Fagen, however, told Judge Jones that the debtors are “proud” of the MyTheresa settlement and “fully prepared” to litigate the UCC’s objections at the Sept 4 confirmation hearing.
Fagen also called the status conference report filed by the UCC an inappropriate attempt to “negotiate from the podium.” Fagen pointed out that considerable time remains before the confirmation hearing for the parties to work out their differences, adding that the debtors are willing to negotiate with the UCC to secure a resolution.
Pachulski, however, insisted that the debtors and other settlement parties have made no effort to negotiate with the UCC so far, despite the UCC “effectively begging” for their attention. Pachulski told Judge Jones that offers to purchase the Series B shares submitted by Jefferies and Marble Ridge are too contingent to be actionable and that he expects the Series B shares to be deposited in a liquidating trust with Mo Meghji of M-III Partners as trustee. Meghji will get the most he can for the shares, Pachulski said, but without the protections sought by the UCC, “what we’ve got is a completely illusory piece of paper.” Pachulski hinted that the debtors would have difficulty confirming their plan over the UCC’s objections, considering the value of the MyTheresa avoidance claims.
Andrew Leblanc of Milbank, counsel for Ares, told Judge Jones that Ares has already given “a huge number of concessions” on the Series B terms and suggested that the UCC suffers from a “lack of understanding.” Just before the hearing, Ares filed a response to the UCC’s statement indicating that it is willing to grant the UCC further concessions, including protection against the issuance of parity and senior stock, a prohibition against dividends on, or redemptions of, junior common stock or securities, inclusion of the Series B shares in the payment waterfall under the parent letter agreement, provisions requiring unanimous holder consent for changes to dividend, redemption price or liquidation preference rights and certain transfer restrictions. According to the response, however, Ares will not agree to the UCC’s requests for a mandatory redemption date, continuing dividends after a Series A redemption and equal reporting rights.
Leblanc maintained that under Ares’ proposal the Series B shares would be considerably more protected than they currently are in the hands of the sponsors and stressed that the Series B shares were “never intended” to have rights equal to Series A shares. Pachulski countered that the sponsors did not need the Series B protections sought by the UCC when the shares were issued because the sponsors controlled MyTheresa.
“You guys are talking at one another and not to one another,” the judge remarked. “I want you to get talking to one another.” Judge Jones directed Pachulski, Fagen and any other interested parties to begin discussions this afternoon and try to reach an agreement. If the parties cannot agree, Judge Jones said, then he would hold hearings to go through the UCC’s requests one by one. The judge noted that some of the UCC’s requests are “absolutely valid concerns” and some are “basic protective devices that need to be in place,” but on others he “will have to fill in the blank,” and the parties “may not want that to be where this is going to go.”