New Chapter 11 Bankruptcy Filing - Neiman Marcus Group LTD LLC

Neiman Marcus Group LTD LLC

May 7, 2020

Dallas-based Neiman Marcus Group LTD LLC, Bergdorf Goodman Inc. and 22 other debtors filed for chapter 11 bankruptcy in the Southern District of Texas late this week. If anyone is seeking an explanation as to why that may be outside the obvious pandemic-related narrative, look no farther than this monstrosity:

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A quick reality check: that $5b capital structure isn’t attached to an international enterprise with hundreds or thousands of stores. You know, like Forever21. Rather, that horror show backs a 68 store business (43 Neiman Marcus, 2 Bergdorf, 22 Last Call). Ah….gotta love the good ol’ $5b leveraged buyout.

This case is all about “BIG.”

Big capital structure stemming from a big LBO by two big PE funds, Ares Capital Management and CPP Investment Board USRE Inc.

Big brands with big price tags. PETITION Note: top unsecured creditors include Chanel Inc., Gucci America, Dolce and Gabbana USA Inc., Stuart Weitzman Inc., Theory LLC, Christian Louboutin, Yves Saint Laurent America Inc., Burberry USA, and more. There is also a big amount allocated towards critical vendors: $42.5mm. Nobody messes with Gucci, folks. Here’s a live shot of a representative walking out of court confident that they’ll get their money:

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Big fees. More on this below.

Big, complicated — and controversial — multi-year re-designation and asset stripping transactions that were part of the debtors’ (and now non-debtors’) elaborate strategy to restructure out-of-court by kicking the can down the road. This is undoubtedly going to stir a big fight in the case. More on this below too.

Big value destruction.

Here is what will happen to the pre-petition capital structure under the proposed term sheet and restructuring support agreement filed along with the chapter 11 papers — a deal that has the support of 78% of the term lenders, 78% of the debentures, 99% of the second lien notes, 70% of the third lien notes, and 100% of the private equity sponsors:

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The Asset-Based Revolving Credit Facility and FILO Facility will get out at par. There’ll be a $750mm exit facility. Beyond that? All that red constitutes heaps and heaps of value that’s now essentially an option. It’s a bet that there is a place in the future for brick-and-mortar luxury department stores. Pursuant to the deal, the “Extended Term Loans” will get the lion’s share of equity (87.5%, subject to dilution). The rest of the capital structure will get small slivers of reorganized equity. General unsecured creditors will get “their pro rata share of a cash pool.” The private equity sponsors will get wiped out but for their hoped-for liability releases.

Back to those big fees. The biggest issue for this week was the debtors’ proposed $675mm new money DIP credit facility (that comes in junior to the existing ABL in priority…in other words, no roll-up here). The DIP is essentially 13% paper chock full of fees (including a backstop fee payable in “NewCo equity” at 30% discount to plan value). One disgruntled party, Mudrick Capital Management, a holder of $144mm of the term loan, appears to have beef with Pimco and other DIP backstop parties — saying that the backstop agreement is inappropriate and the DIP fees are outrageous, likening the fee grab to a COVID hoarding mentality — and therefore felt compelled to cross-examine the debtors’ banker as to the reasonableness of it all. If you’ve ever imagined a kid suing other kids for not picking him for their dodgeball team, it would look something like this did.

And so Lazard’s testimony basically boiled down to this:

“Uh, yeah, dude, nobody knows when the economy will fully open up. The company only has $100mm of cash on the petition date. And IT’S NOT OPERATING. That money is enough for maybe 3 weeks of cash burn given that the debtors intend to continue paying rent (unlike most other retailers that have filed for bankruptcy lately). Damn pesky high-end landlords. Anyway, so we’ll burn approximately $300mm between now and when stores are projected to reopen in July/August. No operating cash flow + meaningful cash burn = risky AF lending environment. It’s unprecedented to lend into a situation with a cash burn that, while it pales in comparison to something like Uber, is pretty damn extreme. Look at the J.Crew DIP: it ain’t exactly cheap to lend in this market. There are no unencumbered assets; there certainly isn’t a way to get junior financing. And a priming fight makes no sense here given the impossibility of showing an equity cushion. So stop being an entitled little brat. There’s no obligation on anyone to cut you into the deal. And if you’re going to cry over spilled milk, take up your beef with Pimco and f*ck right off. Alternatively, you can subscribe to your pro rata portion of the DIP and enjoy all of the fees other than the backstop fee.”

The Judge was convinced that the above rationale constituted good business judgment and approved the DIP on an interim basis.

The hearing also foreshadowed another contentious issue in the case: the myTheresa situation. See, the Debtors’ position is the following: “The ‘17 MyTheresa designation as unrestricted subs + the ‘18 distribution of the myTheresa operating companies to non-debtor Neiman Marcus Group Inc. (a/k/a the “asset stripping” transaction) + a ‘19 wholesale amend-and-extend + cost-saving initiatives + comparable same store sales growth for 7 of 10 quarters + “significantly expanded margins” during the holiday period = rocket ship future growth but for the damn pandemic. On the flip side, Marble Ridge Capital LP takes the position that:

…the Debtors’ financial troubles were entirely foreseeable well before recent events. The Company has operated at leverage multiples more than twice its peers since at least 2018 (prior to the fraudulent transfers described herein). And last year’s debt restructuring increased the Company’s already unsustainable annual interest expense by more than $100 million while only reducing the Company’s debt load by $250 million leaving a fraction of adjusted EBITDA for any capital expenditures, principal repayment, taxes or one-time charges. Sadly, the Debtors’ financial distress will come as no surprise to anyone.

This ain’t gonna be pretty. Marble Ridge has already had one suit for fraudulent transfer dismissed with prejudice at the pleading stage. Now there are defamation and other claims AGAINST Marble Ridge outstanding. And subsequent suits in the NY Supreme Court. Have no fear, though, folks. There are independent managers in the mix now to perform an “independent” investigation into these transactions.

The debtors intend to have a plan on file by early June with confirmation in September. Until then, pop your popcorn folks. You can socially distance AND watch these fireworks.

  • Jurisdiction: S.D. of Texas (Judge Jones)

  • Capital Structure: See above.

  • Professionals:

    • Legal: Kirkland & Ellis LLP (Anup Sathy, Chad Husnick, Matthew Fagen, Austin Klar, Gregory Hesse, Dan Latona, Gavin Campbell, Gary Kavarsky, Mark McKane, Jeffrey Goldfine, Josh Greenblatt, Maya Ben Meir) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Kristhy Peguero, Veronica Polnick)

    • Independent Managers of NMG LTD LLC: Marc Beilinson, Scott Vogel

      • Legal: Willkie Farr & Gallagher LLP (Brian Lennon, Todd Cosenza, Jennifer Hardy, Joseph Davis, Alexander Cheney)

      • Financial Advisor: Alvarez & Marsal LLC (Dennis Stogsdill)

    • Independent Manager of Mariposa Intermediate Holdings LLC: Anthony Horton

      • Legal: Katten Muchin Rosenman LLP

    • Neiman Marcus Inc.

      • Legal: Latham & Watkins LLP (Jeffrey Bjork)

    • Financial Advisor/CRO: Berkeley Research Group LLC (Mark Weinstein, Kyle Richter, Marissa Light)

    • Investment Banker: Lazard Freres & Co. LLC (Tyler Cowan)

    • Claims Agent: Stretto (*click on the link above for free docket access)

  • Other Parties in Interest:

    • Pre-petition ABL Agent: Deutsche Bank AG New York Branch

      • Legal: White & Case LLP (Scott Greissman, Andrew Zatz, Rashida Adams) & Gray Reed & McGraw LLP (Jason Brookner, Paul Moak, Lydia Webb)

    • FILO Agent: TPG Specialty Lending Inc.

      • Schulte Roth & Zabel LLP (Adam Harris, Abbey Walsh, G. Scott Leonard) & Jones Walker LLP (Joseph Bain)

    • Pre-petition Term Loan Agent: Credit Suisse AG Cayman Islands Branch

      • Legal: Cravath Swaine & Moore LLP (Paul Zumbro, George Zobitz, Christopher Kelly) & Haynes and Boone LLP (Charles Beckham, Martha Wyrick)

    • Second Lien Note Agent: Ankura Trust Company LLC

    • Third Lien Note Agent: Wilmington Trust NA

    • Unsecured Notes Indenture Trustee: UMB Bank NA

      • Legal: Kramer Levin Naftalis & Frankel LLP (Douglas Mannal, Rachael Ringer)

    • 2028 Debentures Agent: Wilmington Savings Fund Society FSB

    • Ad Hoc Term Loan Lender Group (Davidson Kempner Capital Management LP, Pacific Investment Management Company LLC, Sixth Street Partners LLC)

      • Legal: Wachtell Lipton Rosen & Katz (Joshua Feltman, Emil Kleinhaus) & Vinson & Elkins LLP (Harry Perrin, Kiran Vakamudi, Paul Heath, Matthew Moran, Katherine Drell Grissel)

      • Financial Advisor: Ducera Partners LLC

    • Ad Hoc Secured Noteholder Committee

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Alice Belisle Eaton, Claudia Tobler, Diane Meyers, Neal Donnelly, Patricia Walsh, Jeffrey Recher) & Porter Hedges LLP (John Higgins, Eric English, M. Shane Johnson)

      • Financial Advisor: Houlihan Lokey Capital Inc.

    • Large Creditor: Chanel Inc.

      • Legal: Sheppard Mullin Richter & Hampton LLP (Justin Bernbrock, Michael Driscoll)

    • Large Creditor: Louis Vuitton USA Inc.

      • Legal: Barack Ferrazzano Kirschbaum & Nagelberg LLP (Nathan Rugg)

    • Large Creditor: Moncler USA Inc.

      • Legal: Morrison Cohen LLP (Joseph Moldovan, David Kozlowski)

    • Marble Ridge Capital LP & Marble Ridge Master Fund LP

      • Legal: Brown Rudnick LLP (Edward Weisfelner, Sigmund Wissner-Gross, Jessica Meyers, Uchechi Egeonuigwe)

    • Mudrick Capital Management LP

      • Legal: Gibson Dunn & Crutcher LLP (Michael Rosenthal, Mitchell Karlan, David Feldman, Keith Martorana, Jonathan Fortney)

    • Sponsor: CPP Investment Board USRE Inc.

      • Legal: Debevoise & Plimpton LLP (Jasmine Ball, Erica Weisgerber) & Pillsbury Winthrop Shaw Pittman LLP (Hugh Ray, William Hotze, Jason Sharp)

    • Sponsor: Ares Capital Management

      • Legal: Milbank LLP (Dennis Dunne, Thomas Kreller)

    • Official Committee of Unsecured Creditors

      • Legal: Pachulski Stang Ziehl & Jones LLP (Richard Pachulski) & Cole Schotz PC (Daniel Rosenberg)

      • Financial Advisor: M-III Advisory Partners LP (Mohsin Meghji)

      • Valuation Expert: The Michel-Shaked Group (Israel Shaked)

New Chapter 11 Bankruptcy Filing - Taco Bueno Restaurants, Inc.

Taco Bueno Restaurants, Inc.

November 6, 2018

Damn you Chipotle Mexican Grill Inc. ($CMG).

It’s been a rough several months for Mexican restaurants. Over the summer, Tennenbaum Capital and Z Capital-owned RM Holdco LLC (Real Mex) filed for bankruptcy in the District of Delaware and pursued a sale of its business. Now, Texas-based, TPG-owned Taco Bueno Restaurants, Inc., a Tex-Mex quick service restaurant (“QSR”) with 140 owned and 29 franchised locations, has filed a prepackaged bankruptcy that will convey ownership to Taco Supremo LLC, an affiliate of Sun Holdings Inc., which bought-out the debtors’ initial lenders in October. Taco Supremo subsequently signed a restructuring support agreement memorializing its intent to effectuate a debt-for-equity swap and provide the debtors with a DIP credit facility.

So, why is all of this necessary? The company noted:

…while Taco Bueno possesses a traditional brand with a loyal customer base and the potential for future growth under the leadership of its new management team, Taco Bueno’s existing capital structure is unsustainable and its financial performance fell significantly due to, among other things, historical mismatches between price and product value, a lack of product innovation, and deferred maintenance capital investment. In addition, competition in the Mexican food industry – including the rise in popularity of tacos at both QSRs and other types of restaurants – increased substantially in recent years, causing certain Taco Bueno stores to experience stagnant or reduced customer traffic and sales. Moreover, while Taco Bueno recently launched a process to close underperforming stores to better focus on core markets and high-value stores, Taco Bueno continues to suffer from a number of underperforming restaurants. Accordingly, Taco Bueno needs to continue to restructure its lease footprint and renegotiate existing leases to optimize profitability.

Even the “Buenoheads” — yes, that’s actually a thing, apparently — couldn’t save this thing from bankruptcy. The debtors’ EBITDA fell to approximately $17.2 million in 2017 with a projected EBITDA of approximately $5.9 million for 2018, compared to approximately $33 million in 2016 EBITDA and approximately $31 million in 2015 EBITDA. Of course, the $130mm of debt doesn’t help either.

Consequently, to salvage liquidity and allow its bankers to conduct a process, the debtors closed 20 locations in the last year (and are in the midst of negotiations with Spirit Realty Capital Inc. ($SRC), U.S Realty Capital, and Kamin Realty Co., the landlords of over 50% of the debtors’ leases). The management team has turned over and the company attempted a prepetition sale process. That process culminated in the above-noted RSA-based transaction that will attempt to flush the company in and out of bankruptcy court by the middle of December.

  • Jurisdiction: N.D. of Texas

  • Capital Structure: $130.9mm debt     

  • Company Professionals:

    • Legal: Vinson & Elkins (David Meyer, Jessica Peet, Paul Heath, Garrick Smith, Matthew Pyeatt, Andrew Geppert)

    • CRO/Financial Advisor: Berkeley Research Group LLC (Haywood Miller)

    • Investment Banker: Houlihan Lokey Capital Inc. (Adam Dunayer)

    • Real Estate Advisor: Jones Lang LaSalle Americas Inc.

    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)

  • Other Parties in Interest:

    • Initial Lender: Bank of America NA

    • Sponsor: TPG Growth III Management LLC

New Chapter 11 Filing - iHeartMedia Inc.

iHeartMedia Inc.

3/14/18

iHeartMedia Inc., a leading global media company specializing in radio, outdoor, mobile, social, live media, on-demand entertainment and more, has filed for bankruptcy -- finally succumbing to its $20 billion of debt ($16 billion funded) and $1.4 billion of cash interest in 2017. WOWSERS. The company purports to have "an agreement in principle with the majority of [its] creditors and [its] financial sponsors that reflects widespread support across the capital structure for a comprehensive plan to restructure...$10 billion..." of debt.

The company notes $3.6 billion of revenue and unparalleled monthly reach ((we'll have more to say about this in this Sunday's Members-only newsletter (3/18/18) - this claim deserves an asterisk)). 

Still, as it also notes, the company faces significant headwinds. It states in its First Day Declaration,

"Among other factors, the global economic downturn that began in 2008 resulted in a decline in advertising and marketing spending by the Debtors’ customers, which resulted in a corresponding decline in advertising revenues across the Debtors’ business. Then, as the economy recovered, the Debtors’ industry faced new and intense competition from the rapidly-growing internet and digital advertising industry and the entry of on-demand streaming services, both of which siphoned off the share of advertiser revenues allocated by agencies and brands to broadcast radio. The Debtors have taken various operational steps to stem the negative effect of these trends; among other initiatives, the Debtors have successfully developed emerging platforms including its industry-leading iHeartRadio digital platform and nationally-recognized iHeartRadio-branded live events that are audio and video streamed and televised nationwide."

The company ought to expect these trends to continue.

Large creditors include Cumulus Media Inc. (~$5.6 million...yikes) and Spotify (~$2 million).  

  • Jurisdiction: S.D. of Texas
  • Capital Structure:    
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  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Anup Sathy, Brian Wolfe, William Guerrieri, Christopher Marcus, Stephen Hackney, Richard U.S. Howell, Benjamin Rhode, AnnElyse Gibbons) & Jackson Walker LLP (Patricia Tomasco, Matthew Cavenaugh, Jennifer Wertz)
    • Financial Advisor to the Company: Moelis & Co. 
      • Legal: Latham & Watkins LLP (Caroline Reckler, Matthew Warren)
    • Restructuring Advisor to the Company: Alvarez & Marsal LLC
    • Legal for the Independent Directors: Munger Tolles & Olson LLP (Kevin Allred, Seth Goldman, Thomas Walper, John Spiegel)
    • Financial Advisor to the Independent Directors: Perella Weinberg Partners LP
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Large Equity Holders: Bain Capital & Thomas H. Lee Partners
      • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Christopher Lopez, Gabriel Morgan)
    • Potential Buyer: Liberty Media Corporation & Sirius XM Holdings Inc.
      • Legal: Weil Gotshal & Manges LLP (Stephen Karotkin, Ray Schrock, Alfredo Perez)
    • Successor Trustee for the 6.875% '18 Senior Notes and 7.25% '27 Senior Notes: Wilmington Savings Fund Society, FSB
      • Legal: White & Case LLP (Thomas Lauria, Jason Zakia, Erin Rosenberg, J. Christopher Shore, Harrison Denman, Michele Meises, Mark Franke, Michael Garza) & Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Matthew Silverman) & (local) Andrews Kurth Kenyon LLP (Robin Russell, Timothy A. Davidson II, Ashley Harper)
    • Successor Trustee for the 11.25% '21 Priority Guaranty Notes
      • Legal: Kelley Drye & Warren LLP (Eric Wilson, Benjamin Feder, Kristin Elliott)
    • Successor Trustee for the 14.00% Senior Notes due 2021
      • Legal: Norton Rose Fulbright (US) LLP (Jason Boland, Christy Rivera, Marian Baldwin Fuerst)
    • Term Loan/PGN Group
      • Legal: Jones Day (Thomas Howley, Bruce Bennett, Joshua Mester)
    • Ad Hoc Group of Term Loan Lenders
      • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, Tyler Nurnberg, Sarah Gryll, Christopher Odell, Hannah Sibiski) 
    • TPG Specialty Lending Inc.
      • Legal: Schulte Roth & Zabel LLP (Adam Harris, David Hillman, James Bentley) & (local) Jones Walker LLP (Joseph Bain, Laura Ashley) 
    • Special Committees of the Board of Clear Channel Outdoor Holdings Inc.
      • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Paul Shalhoub, Christopher Koenig, Jennifer Jay Hardy)
    • Ad Hoc Committee of 14% Senior Noteholders of iHeart Communications
      • Legal: Gibson Dunn & Crutcher LLP (Robert Klyman, Matt Williams, Keith Martorana, Matthew Porcelli) & (local) Porter Hedges LLP (John Higgins, Aaron Power, Samuel Spiers)
    • 9.00% Priority Guarantee Notes due 2019 Trustee: Wilmington Trust NA
      • Legal: Stroock & Stroock & Lavan LLP (Jayme Goldstein, Daniel Fliman, Brian Wells) & (local) Haynes and Boone, LLP (Charles Beckham Jr., Martha Wyrick, Kelsey Zottnick)
    • Citibank N.A.
      • Legal: Cahill Gordon & Reindel LLP (Joel Levitin, Richard Stieglitz Jr.) & (local) Locke Lord LLP (Berry Spears)
    • Delaware Trust Company
      • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Benjamin Finestone, K. John Shaffer, Monica Tarazi, Victor Noskov)
    • Official Committee of Unsecured Creditors
      • Legal: Akin Gump Strauss Hauer & Feld LLP (Ira Dizengoff, Philip Dublin, Naomi Moss, Charles Gibbs, Marty Brimmage)

Updated 3/30/18

New CCAA Filing - Sears Canada Inc.

Sears Canada Inc.

  • 6/22/17 Recap: No one saw this dumpster fire coming. That's sarcasm, ya'll. Riddled with debt, a burdensome $267mm pension liability, a pattern of declining earnings (see below), and a 1950s sensibility that nobody is interested in, this penny stock ($SCRC) was bound to end up in bankruptcy court. Negative net cash flows have ranged from $30-$100mm per month for the past five months. Hence the "dumpster fire" comment: that's some serious cash burn. Yiiiikes. So, what, in addition to filing for bankruptcy, do you do when your company has sh*t the bed so badly that its brand equity is strongest as a punchline? You step up the marketing game by shunning the term "restructuring" and deploying the flashier descriptor "reinvention" instead. Or toss some pixie dust in the air and come up with "Sears 2.0". Because nobody will know the wiser. Anyway, Sears Holdings ($SHLD) notably holds 12% of SRSC so presumably that 12% is now worth 0% but we wouldn't put it past Eddie Lampert to pull a bunny out of a hat. Somehow. But what do we know: we've never even stepped foot in Ontario. Ps. SHLD traded up nearly 3% on the news. Pss. The Company intends to close at least 59 of 200 locations and layoff 2900 people - all pursuant to a $450mm cumulative DIP credit facility. 
  • Jurisdiction: Ontario Superior Court of Justice
  • Capital Structure: $300mm '19 senior secured debt (Wells Fargo)($170mm funded inc. LOCs), $94mm TL (funded)(GACP Finance Co. LLP, KKR Capital Markets LLC, TPG Specialty Lending Inc.); major shareholders (ESL Investments Inc., Fairholme Capital Management Inc.)    
  • Company Professionals:
    • Monitor: FTI Consulting Canada Inc. (Greg Watson, Paul Bishop, Jim Robinson, Steven Bissell, Linda Kelly, Kamran)
    • Monitor Legal: Norton Rose Fulbright Canada LLP (Orestes Pasparakis, Virginie Gauthier, Alan Merskey, Evan Cobb, Alexander Schmitt, Catherine Ma)
    • Company Legal: Osler Hoskin & Harcourt LLP (Marc Wasserman, Jeremy Dacks, Michael De Lellis, Tracy Sandler, Shawn Irving, Martino Calvaruso, Karin Sachar)
    • Financial Advisor: BMO Nesbitt Burns Inc.
  • Other Parties in Interest:
    • $300mm DIP ABL Agent: Wells Fargo Capital Finance Corporation Canada
      • Legal: Cassels Brock & Blackwell LLP (Ryan Jacobs, Jane Dietrich, R. Shayne Kukulowicz, Tim Pinos, Lara Jackson, Ben Goodis)
      • Financial Advisor: Alvarez & Marsal (Doughas McIntosh, Al Hutchens, Joshua Nevsky)
    • $150mm DIP Term Agent: GACP Finance Co. LLP
      • Legal: Goodmans LLP (Joe Latham, Jean Anderson, Dan Dedic, Graham Smith, Jason Wadden, Ryan Baulke)
    • Board of Directors
      • Legal: Bennett Jones LLP (Gary Solway, Raj Sahni, Sean Zweig)
    • Active Employees and Retirees
      • Legal: Koskie Minsky LLP (Andrew Hatnay, Mark Zigler)

Updated 7/11/17 6:11 pm