Neiman Marcus: May File Bankruptcy

“People familiar with the matter” are predicting this is the week retailer Neiman Marcus finally files for Chapter 11. Admittedly, this has been predicted before, as in our earlier article about the company on March 27. The difference this time is that the already beaten up luxury retailer has had to furlough essentially all its employees since March 30, and with no end in sight.

For BDC watchers the question then and now remains how the only player with exposure – TPG Specialty (TSLX) – is going to fare in an economic environment that must be worse than any worst case scenario considered when the BDC first invested in an asset-based financing to Neiman in the IIIQ 2019. Miraculously, TSLX has managed to extricate itself from some of the worst performing companies without a financial scratch in recent years. However, we’re increasingly worried that may not be the case this time given the almost shut-down of retail and the general consensus that only a further catastophe will follow the long playing retail apocalypse.

We have added Neiman and the $71.9mn invested by TSLX to the Underperformers list. It’s a testament to TSLX’s track record that we do so with trepidation even as Neiman teeters on the brink. We’ll have to wait now till the filing occurs and some dust settles before ascertaining how this turns out for the BDC which was still carrying its position at par at 12/31/2019. The TSLX conference call in May could be a time for revelations. Or not, if matters are not then settled.

Neiman Marcus: Considering Chapter 11 Filing

Whenever we hear from multiple news outlets that unnamed sources have indicated a company is “considering” filing for bankruptcy we assume some sort of negotiation is going on, and that same someone is leveraging the press for its own advantage. We should also say that 9 times out of 10 of late the rumor has been followed with an actual filing, so it’s worth paying attention to these anonymous whisperings.

Now, iconic retailer Neiman Marcus is said to be close to asking for bankruptcy court protection, which does not seem very surprising given the environment. We shall see and report back.

The only BDC with exposure is the acknowledged master of troubled company lending TPG Specialty (TSLX). The public BDC advanced funds in the form of an asset-based loan in the IIQ 2019 “to support the company’s strategic initiatives”. Obviously that was before the Covid-19 came along to test retail like never before. At year-end the debt was valued at par.

Most recently, though, and despite the ABL nature of the lending, the Term Loan is trading at a (20%) discount according to Advantage Data’s records. That price may not be meaningful in this hot-house environment. However, should Neiman file for bankruptcy, find no buyers and move to liquidation – as has happened to other retailers – the value of the 2021 Term Loan might soon be tested. To date TSLX has dodged every retail bullet. The next few months will be its greatest test of which Neiman Marcus may not even be the most trying one.