After many disputes, Neiman Marcus has emerged from Chapter 11 protection on September 25, 2020. According to news reports, the iconic retailer has shed $4.0bn of its $5.5bn in debt. That’s $200mn a year of debt service saved. The new ownership “which include PIMCO, Davidson Kempner Capital Management, and Sixth Street” have arranged $750mn in new exit financing that will repay the Debtor-In-Possession borrowings outstanding. There’s also a $125mn FILO secured facility and
.. “liquidity provided by $900 million in asset-based lending (ABL) led by Bank of America and a consortium of commercial banks. With the support of its new shareholders and funds available from the exit financing, FILO facility, and ABL facility, the company expects to be able to execute on strategic initiatives to help ensure long-term operations for Neiman Marcus“.
As you can see there a lot of comings and goings where the debt is concerned. This is important because all BDC exposure is held by Sixth Street Specialty Lending (TSLX) in three debt facilities. The fate of one of those debt facilities is straightforward – the $11.2mn 2020 DIP loan – which is about to be repaid, fees and all. That’s why TSLX carries the debt at a premium. Less clear is what happens to 2021 Term Loan, with a cost of $71.4mn. However, we expect that gets paid off as well and TSLX has valued the position very close to par. There’s a tiny 2023 Term Loan with a cost of only $0.8mn, which is likely to be written off.
We don’t know if TSLX will be signing up for a new tour of duty or whether the presence of the Sixth Street organization amongst the buyers makes that problematic. Chances are TSLX will receive its proceeds and as early as the end of the IIIQ 2020 (and may have already) and will exit Neiman with very little in the way of collateral damage. If so, that will be another feather in the cap of TSLX. By getting out whole from a credit where others have lost billions, the BDC validates its unique strategy of running towards – rather than away – from some of the worst bankruptcy prone companies in recent American history.
We will be upgrading Neiman from CCR 5 to CCR 3 if any BDC exposure remains, which we’ll learn more about when IIIQ 2020 results are published.