NEW YORK, United States – Neiman Marcus Group Inc. received court clearance on Friday to leave the debts and drama that drove it bankrupt, just a day after the harshest critic was arrested on federal charges stemming from the case.
A bankruptcy judge in Houston approved a plan that will hand over ownership to creditors in exchange for forgiving about $ 4 billion of Neiman’s $ 5.5 billion in loans. With all the paper shuffled in the coming weeks, the luxury department store will still be up and running, presumably in better financial shape to compete in a cutthroat retail environment.
“Most companies started to run into more debt during the pandemic. Neiman has reduced debt and increased cash liquidity “through the bankruptcy process,” which is a huge competitive advantage, “said Neiman’s Chief Executive Officer Geoffroy van Raemdonck said in an interview with Bloomberg Friday.
Dan Kamensky, co-founder of Marble Ridge Capital LP and the company’s nemesis for the past two years, has followed the process from the sidelines. On Thursday, Kamensky was charged with securities fraud, extortion and obstruction. Prosecutors say he pressured an investment bank to drop plans to outbid Marble Ridge for a stake in Neiman’s valuable Mytheresa unit while the chain was out of business, and then tried to hide it. He declined to comment through a spokesperson.
This matters because Kamensky co-chaired a committee of unsecured creditors, who demanded a piece of Mytheresa to offset their losses and counted on Kamensky to get the highest return for all. U.S. officials allege he tried to take advantage of his role to benefit the portfolio he managed at the expense of other unsecured creditors.
“I cannot comment on ongoing disputes,” said van Raemdonck. But none of us expected it. It was a surprising part of the process. “
Neiman Marcus said in a statement that it is expected to be out of bankruptcy by September 30.
After approving the reorganization plan, US bankruptcy judge David Jones praised the attorneys and other troubled debt professionals who reported Kamensky, choosing chief attorney for the unsecured creditors’ committee, Richard Pachulski. Pachulski’s letter to federal lawyers started the trial that eventually led to Kamensky’s arrest
“There aren’t three people in the country who would have done what you did,” Jones said. “Your integrity has no price.”
Jones also thanked two unnamed employees of Jefferies Financial Group Inc. for reporting Kamensky’s alleged attempt to dissuade the investment bank from bidding for certain Neiman assets.
“What they did was difficult,” said Jones. ‘No one will thank them all. But I appreciate their honor. “
Kamensky’s attorney Patrick Hughes told Jones that his client supports Neiman’s reorganization and is determined to “make amends” for his actions.
“We still intend to seek agreements and try to find a solution to what happened,” Hughes told Jones, referring to any bankruptcy court that Jones could take to hold Kamensky accountable.
The creditor’s group led by Pachulski eventually agreed to drop objections to Neiman’s reorganization in exchange for a stake in Mytheresa. While the criminal charges are closely linked to bankruptcy, the cases are separate and Kamensky’s arrest is unlikely to change the course of Neiman’s revival.
Their controversial relationship dates back to 2018, long before Neiman went bankrupt. That year, the New York hedge fund sued the Dallas-based retailer for treating Mytheresa, a fast-growing online unit at a time when the rest of the company was struggling.
Marble Ridge, a distressed debt investment firm, was among the smaller members of a group of creditors looking to bolster their position as Neiman tried to rework his heavy debt burden and avoid bankruptcy. The allegation was that Neiman’s business maneuvers had weakened their claim to Mytheresa as collateral.
The charge was led by Kamensky, who worked as a bankruptcy attorney before co-founding Marble Ridge. The investor made public his company’s dispute with Neiman with published letters and filed a complaint with the Dallas District Court. Neiman fired back with a lawsuit seeking damages against the company for making allegedly “false statements” with the intention of harming the company.
The retailer said it tried to play nice with Marble Ridge after the fund complained about the asset shuffle, but Kamensky did not participate.
Marble Ridge later condemned a proposed settlement, saying that Neiman is “only trying to pressure creditors to forgive the board’s misconduct and turn a blind eye to the sponsors’ self-enrichment plan.” It compared the retailer’s restructuring plan to a ‘devil bargain’.
The brawl continued after the retailer filed for bankruptcy in May. Kamensky and his firm ended up on Neiman’s official unsecured creditors’ committee. That group quickly opposed the company’s financing plans, citing the Mytheresa maneuver.
Pachulski helped secure a deal whereby the lower-ranking creditors represented by the panel would acquire a stake in Mytheresa in exchange for voiding claims against Neiman’s main sponsors.
To make the deal work for unsecured creditors who wanted cash instead of Mytheresa stock, Pachulski began negotiating with Kamensky on a proposal for Marble Ridge to buy the securities from those who wanted to sell. Before that possible “payout option” was established, Jefferies indicated that according to court documents it would be willing to pay more for the stock than Marble Ridge.
When Kamensky heard about Jefferies, he reportedly called the investment bank and forced him to drop the preliminary offer – abusive of his obligation as co-chair of the committee to get the best deal for everyone, according to court documents.
Kamensky’s actions were reported by Pachulski to the Office of the US Trustee. When Judge Jones learned of the incident, he ordered the trustee to investigate. The report from the trustee’s office, a branch of the United States Department of Justice, concluded that Kamensky had tried to oust Jefferies.
The allegation sparked the company’s reorganization process and forced the hedge fund to close its doors for good. Within weeks, Kamensky was arrested by federal authorities and charged by the Securities and Exchange Commission.
Jones suggested that Kamensky could be banned from sitting on creditors’ panels in the future and that he could be liable for legal fees and other costs associated with the investigation of his actions.
In addition, Jones pointed out the possibility that Marble Ridge might lose some of its priority for repayment in the deal that Kamensky’s commission helped negotiate.
By Katherine Doherty and Steven Church