Fri 05/08/2020 20:37 PM
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Relevant Document:
Hearing Agenda

Judge David Jones granted the Neiman Marcus debtors’ requested first day relief, including interim approval of the debtors’ DIP financing, at a hearing today. Today’s interim DIP approval provides the debtors with access to $275 million of the total $675 million secured, superpriority DIP multi-draw term loan credit facility provided by certain of the debtors’ creditors. Judge Jones overruled certain aspects of the objections filed by Mudrick Capital Management, Marble Ridge and other creditors. Mudrick had submitted an alternative DIP proposal prior to the debtors’ chapter filing but the debtors rejected it. Other aspects of the DIP objections have been preserved for the final hearing.

As part of the debtors’ case for interim DIP approval, the debtors called two witnesses: Mark Weinsten, the Chief Restructuring Officer of Neiman Marcus Group LTD LLC, and Tyler Cowan of Lazard, the debtors’ investment banker.

The court has scheduled the debtors’ second day hearing for June 2 at 3 p.m. ET.

Reorg’s complete live coverage of today’s first day hearing is available HERE.

Highlights from today’s first day hearing are provided below.

The debtors acknowledged early in their presentation of today’s case that the court would be hearing a lot about the MyTheresa assets - both today and throughout the cases and despite MyTheresa not being a debtor - and the transactions that resulted in those assets being transferred “out of reach of creditors,” as David Elsberg of Selendy & Gay for UMB Bank as counsel for the unsecured notes trustee put it.

Edward Weisfelner of Brown Rudnick spoke on behalf of unsecured noteholder Marble Ridge, outlining the belief that Neiman Marcus’ sponsors Ares and the Canadian pension board engaged in a $1 billion fraudulent conveyance of the debtors’ MyTheresa business for no consideration at a time when the debtors were “clearly insolvent.” Ultimately, Judge Jones thanked Weisfelner for his “strategic” lawyering - which the judge said was meant as the highest of compliments, adding that, with respect to Marble Ridge’s allegations, “the fights that you’re starting to carve out, we’ll have those fights another day.”

Later in the hearing, Judge Jones affirmed that the debtors’ automatic stay order would not impinge on UMB Bank’s claims against non-debtors. UMB Bank has a fraudulent conveyance lawsuit pending in New York state court, which it asserted prepetition against the debtors and several non-debtors.

During Cowan’s testimony regarding the DIP financing, Cowan emphasized the debtors’ “huge need for capital” and noted that the debtors expect to burn $370 million between now and the end of July. He acknowledged that the proposed DIP is “certainly unusual” in the sense that the debtors are obtaining financing despite the company largely not operating at the moment given the store closures amid the Covid-19 pandemic.

Cowan also testified that the debtors ultimately rejected the alternative DIP proposal submitted by Mudrick after concluding that it was not actionable. In defense of the proposed fees, which was the subject of Mudrick’s attack in its DIP objection, Cowan testified that he believed the fees are appropriate and reasonable in light of the risk profile. He pointed to J. Crew as an example of a recent chapter 11 case that also involved high fees associated with its DIP financing. Cowan repeatedly asserted his belief that the proposed fees were a necessary economic inducement for the provision of the financing and that the total fees should be viewed as part of an “economic package.”

Weinsten also emphasized the debtors’ need for immediate access to the DIP financing. Although the debtors had “a little more than $100 million” of cash on hand as of the petition date, said Weinsten, the debtors face having brands and service providers not wanting to work with them unless they demonstrate sufficient liquidity. Weinsten also discussed BRG’s model and underlying assumptions. He noted that the base assumption for purposes of modeling is that the debtors’ stores will reopen sometime “in mid-July.”

Weinsten also testified that in his view, the Mudrick alternative DIP proposal “would not work” for numerous reasons. He testified that although Mudrick’s proposal involved a larger “face value” amount, in reality, it did not provide a greater amount in terms of liquidity.

In responding to Mudrick’s objection, Chad Husnick of Kirkland & Ellis asserted simply that “the proposed non-consensual priming fight is not a fight that we could win,” explaining that Mudrick “didn’t have a solution to the problem that we identified,” namely, that its alternative DIP proposal was not actionable as adequate protection could not have been provided to the first lien lenders.

Ultimately, and after noting that the debtors’ capital structure “should scare most people,” Judge Jones determined that the proposed DIP financing represents the best available deal to the debtors and granted the DIP financing motion on an interim basis. “It is expensive money,” Judge Jones acknowledged, adding, “We all wish that Neiman Marcus could get a PPP loan and that it would be free,” but unfortunately, that is not available to the debtors.
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