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Neiman Marcus-Marble Ridge Debt Spat Becomes Dogfight

A Texas state court judge will have to rule on a dispute between Neiman Marcus and its hedge fund creditor over the retailer’s reshuffling of assets.

(Bloomberg)—Five billion dollars in debt, Neiman Marcus Group Inc. has been on the defensive for months from rebelling creditors. Now, a judge has to decide whether the luxury chain has crossed the line from self-protection to bullying.

After Marble Ridge Capital accused Neiman Marcus last year of shuffling its assets so that creditors couldn’t claim them after a default, the retailer counter-sued, saying it was being smeared with “false statements.” Months later, the hedge fund is urging a judge to find that the department store chain is trying to silence legitimate criticism and deprive Marble Ridge of its day in court.

The dispute is headed into a critical hearing Thursday in Dallas state court where Marble Ridge is asking to a judge to declare Neiman’s countersuit a Strategic Lawsuit Against Public Participation and dismiss it.

More than two dozen states have laws allowing for SLAPP cases to be quickly thrown out if they make frivolous claims intended to stop people or organizations from exercising the right to free speech. Texas’s law, one of the strongest, enabled President Donald Trump to collect $293,000 from Stephanie Clifford to pay his attorneys after the pornographic film actress known as Stormy Daniels unsuccessfully sued him for defamation over a disparaging tweet.

Uphill Battle

But the New York-based fund may face an uphill battle convincing a judge in the city Neiman Marcus calls home that the retailer is out of line.

“Certainly there’s a home field advantage. That’s no secret,” said Andrew Chatham, a former state district judge in Dallas now in private practice. “You never want to go up against the hometown favorite and Neiman Marcus is one of Dallas’s favorite institutions."

The fight started in September when Neiman Marcus -- which has struggled as its wealthy shoppers look for better deals online -- disclosed that had it moved its German MyTheresa e-commerce unit so that it sits directly under the corporation’s ultimate parent.

It’s not uncommon for borrowers to make such restructuring shifts so that creditors no longer have an equity claim to an asset backing their debt. But the move by Neiman Marcus quickly drew a rebuke from bondholder Marble Ridge, a distressed-debt investor founded by former Paulson & Co. partner Dan Kamensky. Marble Ridge is among the smaller debt holders in a group of creditors that have been maneuvering to shore up their positions as Neiman Marcus has tried to rework heavy debt loads.

In a lawsuit filed in December, Marble Ridge alleged that the shuffle of MyTheresa constituted a “fraudulent transfer of assets totaling approximately $1 billion of value for no consideration.” Marble Ridge has also claimed the retailer owes more than it’s worth and was either insolvent at the time of the transfer or was made insolvent by the deal.

Neiman’s Counter-Suit

Neiman Marcus fired back to deny the allegations, declaring that all of its stores are profitable. The company then went further, accusing Marble Ridge in a counter-suit of misrepresenting its financial condition in a bid to damage its relationship with customers and business partners and manipulate the price of the retailer’s debt.

The hedge fund has stood by its assertion that the retailer is in financial distress, saying it’s common public knowledge. At the same time, Marble Ridge asserts that it never actually said Neiman Marcus is in default over its debt obligations -- only that it may be.

“Marble Ridge’s statements did not cause Neiman’s troubled financial condition any more than a rooster’s crow causes the sun to rise,” the fund said in a court filing.

The feud worsened at the start of the month when Neiman Marcus announced that it had reached a preliminary agreement with a majority of its bondholders and lenders giving it three additional years to pay them back and allowing the retailer more time to turn itself around.

In a letter, Kamensky denounced the the company’s plan to swap current borrowings for new obligations as a “spectacular ‘Devil’s Bargain”’ that will end up helping some investors that made side bets against the company in the credit derivatives market.

The Marble Ridge Capital LP v. Neiman Marcus Group Inc., DC-18-18371, District Court, Dallas County, Texas, 116th Judicial District (Dallas).

--With assistance from Katherine Doherty and Eliza Ronalds-Hannon. To contact the reporters on this story: Peter Blumberg in San Francisco at [email protected]; Tom Korosec in Dallas at [email protected] To contact the editors responsible for this story: Elizabeth Wollman at [email protected] Peter Blumberg


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