Exclusive: Neiman Marcus to file for bankruptcy as soon as this week - sources
Shoppers enter and exit the Neiman Marcus at the King of Prussia Mall, United States' largest retail shopping space, in King of Prussia
By Mike Spector and Jessica DiNapoli
(Reuters) - Neiman Marcus Group is preparing to seek bankruptcy protection as soon as this week, becoming the first major U.S. department store operator to succumb to the economic fallout from the coronavirus outbreak, people familiar with the matter said.
The debt-laden Dallas-based company has been left with few options after the pandemic forced it to temporarily shut all 43 of its Neiman Marcus locations, roughly two dozen Last Call stores and its two Bergdorf Goodman stores in New York.
Neiman Marcus is in the final stages of negotiating a loan with its creditors totaling hundreds of millions of dollars, which would sustain some of its operations during bankruptcy proceedings, according to the sources. It has also furloughed many of its roughly 14,000 employees.
The bankruptcy filing could come within days, though the timing could slip, the sources said. Neiman Marcus skipped millions of dollars in debt payments last week, including one that only gave the company a few days to avoid a default.
Neiman Marcus' borrowings total about $4.8 billion, according to credit ratings firm Standard & Poor's. Some of this debt is the legacy of its $6 billion leveraged buyout in 2013 by its owners, private equity firm Ares Management Corp and Canada Pension Plan Investment Board (CPPIB).
The sources requested anonymity because the bankruptcy preparations are confidential. Neiman Marcus and Ares declined to comment, while CPPIB representatives did not immediately respond to requests for comment.
Other department store operators that have also had to close their stores are battling to avoid Neiman Marcus' fate. Macy's Inc and Nordstrom Inc have been rushing to secure new financing, such as by borrowing against some of their real estate. J.C. Penney Co Inc is contemplating a bankruptcy filing as a way to rework its unsustainable finances and save money on looming debt payments, Reuters reported last week.
A bankruptcy filing would be a grim milestone that Neiman Marcus has spent the last few years trying to avoid. It pushed out due dates on its financial obligations last year in a restructuring deal with some creditors, though the transactions added to Neiman Marcus' interest expenses.
A trustee for some of the company's bondholders sued Neiman Marcus last year, claiming the firm and its owners robbed investors of the value of its luxury e-commerce site MyTheresa by moving the business beyond the reach of creditors in a corporate reshuffling. Neiman maintains its actions were proper.
"In light of the significant headwinds stemming from the coronavirus pandemic and our expectation for a U.S. recession this year, we believe the company's prospects for a turnaround are increasingly low," Standard & Poor's analysts wrote in a note last week.
"We continue to view its capital structure as unsustainable," the analysts added, lowering their credit rating on Neiman Marcus deep into "junk" territory. They said the move reflected the "elevated potential" of a debt restructuring.
Once it files for bankruptcy, Neiman Marcus could attract interest from potential suitors seeking to pick up the company or some of its assets on the cheap, the sources said.
Saks Fifth Avenue owner Hudson's Bay Co explored a bid for Neiman Marcus in 2017 but did not pursue it, people familiar with the matter said at the time. The Canadian company was taken private earlier this year by a group of shareholders led by its chief executive Richard Baker, and it is unclear if it remains interested or would be in a position to pursue a new bid.
A Hudson's Bay representative did not immediately return a request for comment.
FROM FASHION FIXTURE TO BRINK OF BANKRUPTCY
The first Neiman Marcus store opened in Dallas, Texas, in 1907. It was opened by the Marcus and Neiman families, which decided to pursue the retail venture after considering and rejecting an investment in a little-known soft drink at the time called Coca-Cola, according to Neiman Marcus' website.
The company expanded across the United States and in 1972 it acquired New York City's Bergdorf Goodman, itself founded in the early 1900s, becoming a fashion fixture for celebrities and wealthy customers seeking expensive handbags and clothing.
Like other brick-and-mortar department store operators, Neiman Marcus struggled in recent years to compete with discount retail chains and a consumer shift to online shopping. Luxury e-commerce firms such as Yoox Net-A-Porter Group (YNAP) and Farfetch Ltd have added to the competitive pressure facing Neiman Marcus.
The coronavirus outbreak has pushed the company to the brink. While it has asked some workers back to closed stores to fulfill online orders, these operations cannot make up for lost sales in physical stores.
What Makes a “Healthy” Economy?
Wikimedia
Commons
What Makes a “Healthy” Economy?
The
coronavirus pandemic shows that we don’t have one.
April 16, 2020
Last
week, Janet Yellin, former chair of the Federal Reserve, gave an upbeat assessment of the pre-pandemic U.S. economy. “Very fortunately
we started with an economy that was healthy before this hit,” she told the PBS
NewsHour. “The banks were in good shape, the financial system was sound,
Americans at least overall on average had relatively low debt burdens.”
But
how “healthy” was that economy, really? How healthy is an economy whose workers
have so little savings that they can’t make the rent after missing just a
couple of paychecks? How healthy is an economy whose small businesses have so
little cushion that they face almost instant obliteration when their cash flow
is disrupted? How healthy is an economy where hourly employees performing many
essential services earn so little that they have to go to work sick to keep
their jobs? And how healthy is an economy whose housing costs force millions
to cram into overcrowded homes in polluted slums replete with high stress,
malnutrition, asthma, diabetes, heart problems, and other chronic disease?
“There’s
nothing fundamentally wrong with our economy,” said Fed chairman Jerome Powell
in March. It was “resilient,” he said in February. Yellin concurred, citing the
old good news in her hope that the “economy will recover much more speedily
than it did from any past downturn.”
Recover
for whom? The experts look at conventional measurements, which painted a
picture of prosperity before COVID-19. The unemployment rate last September hit
a fifty-year low, at 3.5 percent, and the rate for people without a high school
diploma dropped to a new low of 4.8 percent. The GDP had been growing within
the range considered ideal—two to three percent—and Powell reported a rising
willingness of employers to hire low-skilled workers and train them.
But
alongside the bright figures on unemployment and job creation, consider a
competing set of numbers from before the pandemic: The
poverty-level wages for those who harvest our vegetables, cut our Christmas
trees, wash our cars, cook and serve our food in restaurants, deliver groceries
to our doors, clean our offices, and even drive our ambulances. The 14.3
million households (11.1 percent)
uncertain that they could afford enough food, and the 5.6 million families (4.3
percent) where at least one person has had to cut back on eating during the
year. The 14.3 percent of black children with asthma, double the rate in
the population overall. The 20 percent of children living in crowded homes shared with
other families or three generations of their own, and the 50 percent of urban
children who have lived in those conditions by age nine.
A
pernicious dynamic of financial stress is the unexpected link between housing
costs and malnutrition. For many low-wage families without access to such
government subsidies as Section 8 vouchers or affordable housing, rent can soak
up 40 to 60 percent of income, which can leave too little for other
necessities. You have to pay the rent. You have to pay the electricity, phone,
and fuel bills. If you need a car to get to work, which the vast majority of
employees do, you have to make the car payments. Those are not optional. The
category that can be squeezed is for food, and that’s what many poor families
have to do.
A
result is childhood
malnutrition. It sometimes manifests
itself in obesity resulting from cheap, bad food, which in turn can promote
diabetes. It compromises the immune system. Even more seriously, deprivation of
nutrients such as iron during key periods of brain development, both before and
after birth, can lead to lifelong cognitive impairment. Studies show that
children who suffered iron deficiency as infants, even if they’re fed properly
later, still suffer as adolescents, scoring lower in math, written expression,
and selective recall. Their teachers see them displaying “more anxiety or
depression, social problems, and attention problems,” according to a National
Academy of Sciences report.
So
when federal and state governments are stingy with housing subsidies, as they
always are, they are effectively, perhaps unwittingly, damaging children’s
brain development and life opportunities.
The
booming economy since the Great Recession
of
2008, amplified by Republican tax cuts that
gave
corporations huge benefits, has begun to
raise hourly
wages, but not significantly.
If
median hourly wages in
certain jobs are put next to the official poverty line—currently $25,750 a year
for a family of four—it’s clear why so many people are in desperate trouble so
soon after the economy’s lockdown. Most poor families have only one wage
earner, so assuming a full-time, 40-hour week, that person would have to be
paid $12.38 an hour just to reach the poverty line. As of May 2019, according
to the Bureau of Labor Statistics, the median hourly wage for ambulance drivers
and assistants was just $12.45; for workers in retail sails, $11.37 to $12.14;
for building cleaners, $12.68; for parking attendants, $12.11; and for
fast-food and restaurant cooks and servers (some of whom also get tips), $11.00
to $12.45.
The
lesson is to look beyond the unemployment rate and number of new jobs and
examine how well those jobs pay. The “healthy” economy did little to narrow the
wealth gap. The most recent Federal Reserve figures, from before the pandemic, showed the top 10 percent of
households with a median net worth of $2,387,500 and the bottom 10 percent with
minus $962—that is, they owed more than they owned.
Adding
assets and subtracting liabilities as of the fourth quarter of 2019, the
wealthiest 10 percent had 70 percent ($78.5 trillion) of the country’s total
household net worth, and the bottom 50 percent had just 1.5 percent ($1.7
trillion). The top had miniscule debt, and the bottom half had miniscule
financial assets alongside huge mortgage and consumer debt.
So,
Janet Yellin was only partially right when she said that Americans had low debt
burdens. Consumer debt reached a record high in 2019 of more than $14
trillion, according to Experian, the credit agency. But it was lower as
a portion of income. And defaults and late payments were low enough to drive
the average FICO score—a person’s credit rating—to a high of 703, up from 689
in 2010 at the end of the Great Recession. (A perfect score is 850.) Given the
high credit card and other debt among the unwealthy, however, delinquency rates
can now be expected to soar, pushing credit ratings down.
In
that prospering economy, then, the glass was either half full or half empty,
depending on whether you were looking from the top or from the bottom. There
was no need to exaggerate the hardships at the bottom, as some Democratic
candidates did with one misstated statistic.
BLOG:
INTERESTINGLY HARRIS, WARREN AND SANDERS ALL WANT AMNESTY SO 40 MILLION
ILLEGALS CAN BRING UP THE REST OF MEXICO. NOW DO THE MATH ON JOBS, HOUSING AND
THE HOMELESS CRISIS
Senators
Kamala Harris, Elizabeth Warren, and Bernie Sanders all said last year that 40 percent of Americans could not
come up with the money to pay a $400 emergency expense. In fact, the contrary
was the case, according to the Federal Reserve’s annual survey, “Report on the Economic Well-Being of U.S. Households.”
Asked
to check all the ways they could pay for a $400 emergency, only 12 percent said
they could not pay right now, 45 percent checked “with the money currently in
my checking/savings account or with cash,” and 33 percent said they’d use a
credit card and pay it off entirely at the next statement. To a follow-up
question, 85 percent said that making the unexpected payment would not prevent
their paying other bills.
On
the other hand, 25 percent told the Federal Reserve that they were just getting
by or finding it difficult to get by. That number is troubling enough, one
bound to spike as stay-at-home orders continue. The economy was not “healthy”
for those folks in the first place, and will not be so for many more.
Improvements
will come not from the stalemate of left and right, or from their manipulating
statistics, but from a new ideology of practical realism that honors the
complex facts, without distortion. The free-market system is the one we have,
and it can work for virtually everyone if everyone in government and business
works for everyone. Too idealistic? Naïve? Probably.
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