The story of Neiman Marcus and MyTheresa follows broader storylines in the retail industry.

From a single fashion store in Munich, MyTheresa became a global luxury e-commerce force that shipped to 120 countries by the time Neiman's bought it in 2014. Since then, its revenue and value have more than doubled while the legacy retailer struggled.  

The e-commerce banner has been called Neiman's "crown jewel" by creditors who have waged legal warfare on the company ever since MyTheresa's place in Neiman's corporate organizational chart was reshuffled by the retailer's private equity owners. 

That little change in the legal structure of Neiman Marcus sparked multiple lawsuits and has dogged Neiman's efforts to reorganize in bankruptcy, which itself represents a larger effort to finally set the more than century-old luxury department store on firm financial footing after years of distress. 

Matthew Fagen, a partner with Kirkland & Ellis representing Neiman in its bankruptcy case, said in a hearing on Aug. 3 that the retailer has essentially reached a settlement with creditors for a reorganization plan. While negotiations continue on some finer points, Neiman is moving forward in the process with the aim of putting its reorganization and bankruptcy exit plan up for a vote by creditors with a deadline set at the end of August for voting.

And with that, a very public, multi-year battle between Neiman's and one very vocal hedge fund in particular, might finally see a resolution soon, with a plan that would distribute millions of equity shares in MyTheresa to creditors. But not before more drama and twists in the protracted fight over MyTheresa.

Endless distress

Neiman Marcus filed for bankruptcy in May with a plan to shed billions of dollars of debt and exit Chapter 11 after a few months, on better footing to compete in a difficult brick-and-mortar retail world upended even further by COVID-19. 

After two private equity acquisitions, Neiman's debt load has haunted it for much of the past decade. With the company debt rated as junk for years, and its sales performance inconsistent, the retailer has appeared on all of Retail Dive's bankruptcy watch lists since they started in summer 2017. 

The interest expenses of Neiman's debt often sucked profit from operations and siphoned money away that could have been invested into the business.

Neiman's cut a deal with debtholders last year that bought it time, but did not unburden the company's balance sheet. The COVID-19 pandemic made all of its cash and finance problems all the more urgent, and ultimately unmanageable outside of a court process. 

Endless litigation

For all its troubles, the retailer's brand still carries cache, which explains why lenders are ready to forgo debt repayment in return for a stake in Neiman's while other retailers have been forced to liquidate this year.

Mytheresa, while it is not even involved in the bankruptcy as a business entity, has haunted much of the bankruptcy process.

At issue is the unit's position in the corporate chain. Once under Neiman's umbrella, in 2018 it moved from under Neiman to an entity directly controlled by Neiman's private equity owners. After the move, a lawsuit was filed by hedge fund Marble Ridge, followed by a Neiman countersuit. Neiman has been firm all along that it did nothing improper and complied with its debt terms. 

Ares Management, one of Neiman's private equity owners, was sued in July by UMB Bank in the bank's capacity as trustee on a group of Neiman notes. (UMB also sued Neiman itself last year. That lawsuit was dismissed without prejudice this summer pending Neiman's bankruptcy stay.) UMB called the corporate shift, made through a series of intra-company dividends with no money changing hands, a "scheme" by Ares "to expropriate MyTheresa for itself."

"As the Company was insolvent even before the MyTheresa Subsidiaries were transferred out of it, the Unsecured Noteholders have been stripped of the one key asset that could have mitigated the dire impact of default," UMB said in its complaint against Ares.

The fight raged on through Chapter 11. During Neiman's bankruptcy, a committee of creditors that until recently included Marble Ridge investigated the MyTheresa transaction, together with Neiman board member Scott Vogel, that all told has produced more than 100,000 documents and 10 depositions. Based on that work, Vogel found that there is likely a "viable constructive" fraudulent conveyance claim against the company, according to court filings. 

Vogel's conclusion that there was a plausible claim against the company and its owners was a turning point in the case, according to Catherine Corey, a legal analyst with Debtwire. "If he had come out a different way, I think the settlement probably wouldn't have happened, or it … wouldn't have been as large," she said in an interview.

Key to allegations of whether Neiman and its owners fraudulently spirited MyTheresa out of the reach of creditors and in violation of its debt agreements was whether the company was solvent before, during and after its transfer of MyTheresa. 

An outside consultant hired by the creditors committee found that in every case the answer was no. Neiman's was insolvent before, during and after the transfer of MyTheresa — from March 2017 through its bankruptcy filing this year — according to the consultant's report. 

Moreover, the report found that former Neiman CFO Adam Orvos, who stepped down last year, came up with estimates of the value of Neiman's assets that were "flawed," "incorrect" and "significantly" overstated their value, while at the same time undervaluing MyTheresa. The combination of an overvalued Neiman and undervalued (MyTheresa) made the company appear solvent when it was not, according to the consultant's findings.   

The report also aimed to shed light on just how valuable MyTheresa has become over a period of growth, with its equity value jumping from $675 million in early 2017 to $926 million in May of this year, when Neiman filed.  

Another twist

The primary force, and combatant, in the fight over MyTheresa is Marble Ridge and its leader, Dan Kamensky.  

Kamensky and Marble Ridge have kept the legal and rhetorical war hot since 2018. In a fairly representative sample, Kamensky told Neiman's board of directors in a letter this spring, "By enabling and allowing the improper transfer of the Company's crown-jewel, billion-dollar MyTheresa asset to the out-of-money Sponsors for no consideration, you have left a carcass of a company for the remaining stakeholders and have put both Neiman's storied franchise and thousands of jobs at risk."

After years of relentless pressure, Kamensky brought home a major win for himself and fellow creditors in Neiman's plan to distribute equity in MyTheresa to various creditor groups as part of its reorganization plan, in return for legal releases for those that control Neiman. 

Ironically, in yet another twist in the MyTheresa saga, Kamensky's own share of the rewards may be at risk after he recently came under scrutiny for his role in negotiations. According to one of the lawyers for the unsecured creditors committee, which Marble Ridge was a part of, the hedge fund has mulled offering cash to other creditors for their shares in MyTheresa. That would have given parties owed money by Neiman the chance to cash out rather than hold on to private stock in an e-commerce company.

Some employees at investment bank Jefferies also expressed interest in buying the MyTheresa stock, at a potentially higher price than Marble Ridge, according to a memo from the creditor committee lawyer to the U.S. trustee overseeing the case. Kamensky, who happens to be one of Jefferies' large clients, told the investment bank to "stand down," the committee lawyer alleged in the memo.

Kamensky's attorney said that involved Jefferies employees misinterpreted his comments, that his goal was to keep the negotiations moving quickly to get a deal on Neiman Marcus done in bankruptcy. 

"At no time did Mr. Kamensky believe his conversation would impair or prevent [Jefferies] from submitting a proposal that was fully committed," his attorney said in court documents. On Aug. 1, Kemensky stepped down from the creditor committee "to avoid even the appearance of impropriety and to ensure that any further communications occur on an arm's length basis with the same communicated to Committee counsel."

Depending on what the trustee and in turn the judge overseeing Neiman's case determine, a negative finding against Kamensky could lower the priority of his claim or have other legal ramifications, Debtwire's Corey said. 

Life after bankruptcy

Whatever comes of the probe into Kamensky, it's unlikely to have an effect on Neiman's prospects for reorganization and the settlement it reached with creditors, which is already written into its plan for exiting bankruptcy and currently up to a vote by creditors.

If passed and approved by the court, Neiman will leave bankruptcy, unburdened of a large chunk of its debt and potentially much of the conflict that has hung over it since 2018. 

It will still have in front of it all the challenges of retailing during the COVID-19 pandemic — which not only forced store closures but also a broad slowdown in travel, tourism and the economy at large, which all sharpen the pain to a luxury retailer like Neiman's. 

The company has already given up on its store at Hudson Yards, an ambitious destination development in New York, a little over a year after opening it. Neiman has also moved to close a handful of its flagship stores along with 17 off-price Last Call stores. Of its roughly 59 remaining stores, the company is still evaluating all of its leases, it said in court papers. 

For all the disagreement over Neiman's future, no major stakeholders have argued that it is not worth sustaining. Lenders have fought over their peace of the pie, not over whether there was enough value left in the company, as an operator, to make it worth preserving. It went into bankruptcy with a plan, and the plan has changed, but not in a way to imperil its chances of leaving Chapter 11 intact.