Sources: Neiman Marcus Moves to Launch Bankruptcy Protections

The retail sector had been kind of wobbly even before the coronavirus hit, turning the retail market into pretty much an online-only affair except for a bare handful of exceptions. That's done a number on a range of retailers, especially those whose business was focused on physical foot-traffic, like mall-centered retail. One more casualty of this latest “new normal” has emerged, as reports suggest that Neiman Marcus is looking into bankruptcy protection.

Where's Our Money, Lebowski? ...er...Neiman Marcus?

The reports—issued from the ever-popular “people familiar with the matter”—noted that Neiman Marcus' creditors, up until about last week or so, had been receiving inquiries from its current creditors, asking what its plans were going forward into an environment that hasn't been this inhospitable for retailers since the Great Depression.

The questions were largely answered, it seems, as Neiman Marcus launched discussions with current bondholders about new financing that would help the company continue to run during bankruptcy protection, suggesting it was likely to pursue a Chapter 11 rather than a Chapter 7 bankruptcy. For those not familiar, Chapter 7 is more commonly a complete liquidation, whereas Chapter 11 allows for altered loan terms.This suggests that we may see a different Neiman Marcus in the future, perhaps even one we can scarcely recognize, but the luxury retailer's chances of fading away altogether are slim.

There's Still Some Time To Beat the Bankruptcy, Though

While Neiman Marcus is looking into bankruptcy protections, the reports say that bankruptcy is not necessarily a done deal. The move is still several weeks out, and there are other possibilities emerging that may prevent the need for such a move altogether.

For instance, the current crop of Neiman Marcus creditors could voluntarily provide more time to address the outstanding debt load. Such a move might allow the creditors to get more favorable terms than those they would get out of a bankruptcy court judge. Given the current state of things with the still-ongoing coronavirus mess, and the impact it's having on bottom lines, the terms based on current figures in a bankruptcy court might be minimal.

A Poisoned Relationship?

However, Neiman Marcus' creditors may not be interested in dealing, as this isn't Neiman Marcus' first trip to the well. Last year, the company offered up a deal to creditors that changed loan terms and let the company avoid, once again, a bankruptcy filing. However, the conditions for this one are clearly different, as Neiman Marcus ended up forced to not only close all stores, but also the Last Call and Bergdorf Goodman outlets through the rest of April, at least.

With over $4 billion in outstanding debt, and parts of the term loan reportedly trading at around a 60% discount over face value, investors are already significantly concerned about Neiman Marcus' ability to repay. But with 14,000 employees furloughed and every physical store shuttered, its ability to pull in cash is significantly limited.

Worse, if there is a bankruptcy filing, one familiar issue will likely come to the fore: the MyTheresa website. The earlier debt restructuring, staged last year, saw some controversy around the site which left creditors feeling burned on the deal. Neiman Marcus, for its part, believes it acted properly, and that the creditors' accusations had little merit.

The Future for Neiman Marcus

If this whole coronavirus mess has taught retailers anything, it's about how online retail is now vital. It's the kind of thing that provides business continuity even in the midst of disaster, and allows businesses to maintain some kind of operations. Sure, it doesn't do much about cratering demand, but it at least allows people to continue shopping. Look what it did for Amazon, after all.

While Neiman Marcus may not get a second deal this time—especially after the last deal left a bad taste in creditors' mouths—the creditors may be in a position to get a better deal thanks to how the last one went down, especially now that they have a better idea of what to focus on. The creditors are especially unhappy about the MyTheresa issue, and Neiman Marcus isn't exactly in a position to refuse its creditors on almost any front. No matter how it ends up, though, things will never be the same again for Neiman Marcus, and potentially not for the rest of us either.