Dive Brief:

• Neiman failed to make a payment on a group of bonds this week, according to hedge fund Marble Ridge Capital, which is one of the department store chain's debtholders and has sued Neiman previously.
• In a public letter, Marble Ridge's Daniel Kamensky said that Neiman was now in default on its debt obligations and his fund would "take all necessary actions to protect its rights, including its right to seek all remedies, all of which are expressly preserved."
• A Neiman spokesperson would not comment on the letter or Neiman's payment status. The retailer is reportedly exploring a possible bankruptcy as the COVID-19 pandemic, which prompted Neiman to temporarily close its stores, adds new pressures on its massive debt load.

Dive Insight:

With bankruptcy speculation already surrounding Neiman, the missed bond payment could set the stage for an in-court restructuring. 

Such an outcome may have been inevitable even without a pandemic. Simply put, Neiman has a ton of debt on its books — nearly $5 billion all told. That burden is a hangover from two leveraged buyouts executed by two different private equity groups within a decade of each other. 

The company has been in deep distress for years, with its debt rated as junk and losses some years adding up to many hundreds of millions of dollars. It has appeared on every Retail Dive bankruptcy watch list since they were first compiled in summer 2017. (The watch lists are based on ratings data and bankruptcy risk scores.) 

Now, with a pandemic upturning much of the retail world, Neiman's need to restructure its debt is even more acute. In downgrading Neiman's credit even deeper into junk territory this week, S&P analysts noted the company is "contending with the disruption and recessionary conditions stemming from the coronavirus pandemic, the challenging trends facing department stores, and an unsustainable capital structure."

Last year Neiman cut a deal with lenders to extend some maturities, but the move essentially kicked the can down the road without removing leverage from Neiman's balance sheet. In fact, according to Marble Ridge, the deal added $100 million to the retailer's interest expenses "leaving a fraction of adjusted EBITDA for any capital expenditures, principal repayment, taxes or one-time charges."

Marble Ridge has been locked in rhetorical and legal battles with Neiman for the past two years. The fund sued Neiman over the transfer of the successful e-commerce unit MyTheresa through the complicated network of subsidiaries set up by owners Ares Management and the Canada Pension Plan Investment Board. 

Neiman counter-sued and has denied allegations that MyTheresa was improperly shifted out from under the Neiman entity that was responsible for the debt load to benefit Neiman's owners and to protect MyTheresa from lender claims. The lawsuit was ultimately dismissed. Last year, the trustee of a lender group sued again over the MyTheresa transfer, a lawsuit that is still working its way through the courts.  

That fight could be the subject of more litigation if Neiman should file for bankruptcy, according to reporting from Debtwire.