Neiman Marcus is back from bankruptcy purgatory. Last week, the department store’s reorganization plan was approved by a judge, permitting them to shed $4 billion in debt and $200 million in interest expense. The retailer expects to be officially out of bankruptcy by the end of September, armed with a surprising amount of cash, according to Retail Dive.
The company’s getting a happy ending, but it’s been a bumpy ride. The announcement came a day after Daniel Kamensky, a hedge fund manager, was arrested on federal charges of securities fraud, extortion, wire fraud, bribery, and obstruction of justice after he tried to manipulate the bankruptcy bid for Neiman Marcus’s luxury e-commerce business, Mytheresa.
Who is Daniel Kamensky?
Kamensky, 47, is the founder of Marble Ridge Capital, a hedge fund that specializes in “distressed” investing, according to Reuters, and the co-chair of the unsecured creditors committee in Neiman Marcus’s bankruptcy proceedings.
Business of Fashion describes him as the company’s “nemesis.” For the past two years, he’s been a “vocal and litigious antagonist” against Neiman Marcus, ever since the retailer changed ownership of the fast-growing Mytheresa.com to their private equity owners. Kamensky successfully litigated against Neiman Marcus, arguing that moving its most valuable asset out of reach of lenders was fraudulent. He was successful, receiving a settlement that gave him and other unsecured creditors stock in Mytheresa in return for dropping the fraud charges.
What did he do?
While serving as the co-chair for unsecured creditors, Kamensky secretly worked against their interests. He planned to buy the Mytheresa shares of fellow creditors who wanted to sell theirs for cash. But when he learned that a competing bidder, Jeffries Financial Group, planned to bid 30-40 cents for the shares when he’d been hoping to buy for 20, he used his role as co-chair to threaten Jeffries to drop the bid, saying he would refuse to do business with the bank if they didn’t. Afterwards, he tried to cover his tracks, telling a Jeffries Financial Group employee — on a recorded phone call — to tell law enforcement that his behavior wasn’t a threat, but simply advice.
“Kamensky abused his position as a fiduciary to the Neiman Marcus unsecured creditors by secretly working against them," said Daniel Michael, chief of the SEC's Division of Enforcement's Complex Financial Instruments Unit.
What’s the punishment for doing something like that?
The SEC and the Department of Justice are both pursuing Kamensky, but the group of creditors his actions harmed have dropped charges. Marble Ridge has been forced to close its doors for good, according to Bloomberg, and will liquidate its $1.2 billion in assets by the end of December.
Will it affect Neiman Marcus?
While the arrest brings an element of drama to Neiman Marcus’s return, neither Kamensky’s charges nor his scheme will ultimately change the course of the bankruptcy. Despite Kamensky’s meddling, Neiman Marcus is doing exactly what they’d hoped: Exiting bankruptcy by the end of September.
Where does Neiman Marcus go from here?
Neiman’s got serious cash in its pockets as it exits bankruptcy. The exit financing includes a $750 million term loan along with Neiman's $900 million asset-based loan, according to Retail Dive. Bloomberg suggests that the deal leaves Neiman in “better financial shape” to compete in the retail market than before. The support from Neiman’s creditors, Kamensky excluded, shows that they see the brand as a valuable entity. The bankruptcy slightly shook their online presence — Neiman Marcus lost 10,000 Facebook followers between May and mid-July. It recovered not long after, however. As positive reports emerged about its bankruptcy process, it regained all the lost likes and returned to their peak of 1.14 million followers.
Nonetheless, Neiman Marcus is re-entering into a highly unstable retail world. Unemployment remains at all-time highs and shoppers are steering away from the kind of upscale clothes and businesswear that Neiman Marcus is known for. Neiman’s rival, Nordstrom, saw bigger than expected losses in the third quarter, down 53% from last year, and online sales have dipped 5%. Even if, with their bankruptcy cash, Neiman performs better than its peers, the bar is simply on the floor. The retail industry saw a marginal recovery in August, however, sales are still 52% down from what they were in August of 2019, reports Retail.com. Footwear, apparel, sporting goods, beauty and wellness are all down between 46% and 58% from last year.
About the Data:
Thinknum tracks companies using the information they post online, jobs, social and web traffic, product sales, and app ratings, and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.