UPDATE: September 26, 2018: In a Tuesday letter, investment firm Marble Ridge threatened Neiman Marcus with legal action over the transfer of the retailer's MyTheresa e-commerce unit to a corporate entity held by Neiman's private equity owners. Responding to a letter from Neiman's general counsel, Marble Ridge's Daniel Kamensky wrote that "we are fully prepared to take all necessary legal actions to protect our rights." Kamensky also said in the letter, which was emailed to Retail Dive, that "to the extent the sponsors [i.e., Neiman's owners] do not return MyTheresa back to the company or provide adequate consideration in payment therefor, we have reason to believe the company will be unable to pay its debts as they come due." In an emailed statement, a Neiman Marcus spokesperson reiterated previous statements and pointed to the company's improving financial metrics. "The allegations Marble Ridge has raised are inaccurate, both legally and factually," the spokesperson said.

UPDATE: September 24, 2018: Neiman Marcus on Monday responded to Marble Ridge's letter attacking the retailer's move to transfer an e-commerce subsidiary to a parent organization. "The organizational change is consistent with how we have operated MyTheresa as an independent entity, which we believe will best allow both companies to grow and succeed," a spokesperson for Neiman Marcus said in an emailed statement to Retail Dive, adding that "[i]mportantly, this distribution was expressly permitted by the company's credit documents." Regarding Marble Ridge's allegations that Neiman was potentially in default on its debt agreements and was "insolvent" during or as a result of the transaction, the spokesperson cited Neiman's $800 million in liquidity and said, "The company is not in default and has never been in default. There is no reason to believe we will be in default in the future. …The company is not insolvent, and the organizational change to MyTheresa did not change that."

Dive Brief:

• A debtholder of Neiman Marcus blasted the department store retailer over the transfer of its MyTheresa e-commerce business, which Neiman disclosed — but did not fully elaborate on — last week. 
• In a letter last week, Marble Ridge Capital told Neiman's board that it believed Neiman may have defaulted on its debt agreements over the transfer of MyTheresa to Neiman Marcus Group Inc., the corporate parent of the retailer. Neiman Marcus Group Inc. is owned by Ares Management and the Canada Pension Plan Investment Board, and it is not listed as an issuer, borrower or guarantor of Neiman's debt, according to Marble Ridge. Marble Ridge wrote that "what these transactions appear to be is an attempt to move the MyTheresa business beyond the reach of existing creditors sitting between the sponsors' equity and the valuable MyTheresa assets."
• Marble Ridge also said it believed that Neiman was insolvent when the transactions around MyTheresa were made "or was rendered insolvent thereby," and also alleged that the asset transfer "has all the hallmarks of an intentional or constructive fraudulent transfer." Neiman would not comment to Retail Dive on whether it explored an outside sale of MyTheresa or on talks between the company and Marble Ridge.

Dive Insight:

Debt investors have become more skittish about asset transfers, particularly after J. Crew last year moved valuable intellectual property assets as part of a major debt restructuring deal that may have helped the apparel retailer avoid bankruptcy.

In the case of J. Crew, some debtholders sued to block its restructuring deal, arguing that the company didn't have the right to move IP assets beyond the reach of lenders who expected to secure their investment with those assets. J. Crew prevailed in the case, which could have implications for debt investors. 

As we've seen in recent bankruptcies, including Bon-Ton, Nine West and Toys R Us (which hasn't held its IP auction yet but has plenty of interest already), IP assets can win high dollars at auction as firms try to keep milking the hard-built brands of businesses that went bust.

Marble Ridge has taken an aggressive stance against Neiman and its private equity owners and signaled there could be a legal fight ahead. The firm said in its letter, "Moreover, a dividend or other form of a spinoff by an insolvent guarantor to its equity sponsors, for no consideration, has all the hallmarks of an intentional or constructive fraudulent transfer (or illegal dividend) and raises serious questions of breaches of duties of care and loyalty, with exposure for Ares and CPPIB … and for the company's board."

(A Neiman spokesperson said in a statement of the transfer: "This shift was not a dividend. The MyTheresa entities remain part of Neiman Marcus Group Inc.")

The fight over MyTheresa also reflects the scrutiny private equity owners face when drawing dividends, fees and other financial benefits from retailers under duress or that have gone bankrupt. Several retailers, including Payless and Nine West, have seen lawsuits over financial benefits to private equity owners from those companies. Toys R Us' payments to its owners also came under scrutiny from lenders and as well as employees after years of underinvestment helped send the toy seller into Chapter 11 and ultimately liquidation.

"It is clear that CPPIB and Ares are looking to line their own pockets at the expense of the company's other stakeholders and employees," Marble Ridge Managing Partner Dan Kamensky said in a statement.

He added that "we believe a more responsible board, given its fiduciary obligations, would have engaged in a strategic review to maximize value for the benefit of all of the company's stakeholders." In turn, such a process would have generated "billions of dollars in proceeds that could be used to substantially reduce the Company's indebtedness and put the Company on more solid financial footing, enabling it to invest in and grow its core business," Kamensky said.

Neiman could certainly use the money. While it has put together a streak of sales gains, the retailer also remains highly indebted and remains at risk of bankruptcy, according to credit analysts and data from CreditRiskMonitor.