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Friday, Sep 30, 2022

Pimco Tries On Neiman Marcus

Portfolio managers and executives at Newport Beach-based Pimco often pride themselves on how well they dress.

Now one of the world’s largest money managers, with $1.92 trillion under management, can add a luxury department store chain to their collection of assets.

Pimco on Sept. 4 became the largest equity shareholder in Neiman Marcus Group, the Dallas-based upscale retail chain, when it emerged from Chapter 11 bankruptcy. Neiman counted more than 40 namesake stores across the U.S. as of earlier this year, among other assets.

The new ownership structure was a result of Pimco trading out debt it previously owned for equity. As part of the restructuring, Neiman Marcus was able to shed $4 billion of its estimated $5.5 billion in debt.

The retailer’s new owners “understand the value of our brands and the opportunity for growth,” Neiman Marcus Chief Executive Geoffroy van Raemdonck said last month. The company “will continue to be the preeminent luxury shopping destinations for years to come.”

Regulatory filings indicate bond funds run by Pimco had invested in Neiman’s debt over a several-year period, although the firm’s total stake in the company prior to its bankruptcy filing was not disclosed.

In mid-April, a Bloomberg report cited Pimco as being one of the largest owners of Neiman Marcus’s first-lien debt, with a combined position of more than $600 million.

The value of that debt, and potential losses for Pimco as a result of the restructuring, were not made clear in the bankruptcy filings and a Pimco spokesperson declined to comment.

Neiman’s notes due in 2024 were trading for some 10 cents on the dollar as of mid-April. Neiman filed for Chapter 11 bankruptcy protection on May 7.

$200M Saved

An indication of the size of its stake in the reorganized Neiman is that Pimco obtained three of the retailer’s seven board seats. Debt holders Davidson Kempner Capital Management of New York and San Francisco-based Sixth Street Partners only received one each.

Neiman now has a value around $2 billion, according to its banker Lazard Ltd.

The restructuring reduced Neiman’s annual cash interest expenses by more than $200 million, the retailer said.

“Not only do we have business continuity, we now have the best balance sheet in the business,” van Raemdonck said in a September interview with Vogue Business. “The rest of this year will be challenging, but it’s a really high moment.”

Diversification Strategy

Taking ownership of a department store chain marks a more notable example of Pimco’s expanding investment reach in recent years.

Since Manny Roman took over as chief executive in late 2016, Pimco has diversified from managing its traditional bread and butter portfolio of bonds into other areas, with real estate a notable focus.

In March, Pimco took over management of Allianz Real Estate, the real estate arm of Pimco’s parent company, Allianz Group of Germany. Pimco’s real estate investment platform topped $100 billion following the move.

This summer, the company was reported to be the top bidder for a 346,000-square-foot largely vacant San Francisco office tower, which is being sold by e-cigarette maker Juul for $310 million. That deal’s completion was in doubt as of late September, according to Bay Area reports.

Pimco’s local real estate holdings include a stake in Irvine’s Intersect office campus.

Pimco has also invested $200 million in lending platform GreenSky LLC and bought Gurtin Municipal Bond Management to expand into muni strategies for high-net worth individuals.

The company’s been involved in other notable bankruptcies of late, beyond Neiman.

Last year, Pimco became embroiled in a dispute with Blackstone Group Inc. when its Santa Ana-based mortgage unit, Stearns Lending, declared Chapter 11 bankruptcy. It set off a battle between Blackstone and Pimco, which owned about $120 million in Stearns debt. The two firms reached an agreement, which avoided the liquidation of the company that had 2,700 employees.

Ownership Swaps

Neiman Marcus, which was founded in 1907, became known for its lavish luxury goods such as $2,000 designer handbags, $25,000 one-of-a-kind evening dresses and holiday catalogs that once included a $20 million submarine and a $35 million Boeing jet.

In 2005, it was purchased in a leveraged buyout by two private equity firms, Texas Pacific Group and Warburg Pincus. Then in 2013, it was purchased for $6 billion by Los Angeles-based Ares Management Corp. and the Canada Pension Plan Investment Board.

The retail chain generated about $4.5 billion in 2019 revenue. After the coronavirus struck, Neiman Marcus struggled to keep stores open, resulting in the bankruptcy filing.

“Prior to COVID-19, Neiman Marcus Group was making solid progress on our journey to long-term profitable and sustainable growth,” Raemdonck said in a May statement. “Like most businesses today, we are facing unprecedented disruption caused by the COVID-19 pandemic, which has placed inexorable pressure.”

Local Connections

Pimco isn’t the only Orange County company involved in the bankruptcy.

Stretto, an Irvine-based fintech company that provides technology and other services to businesses restructuring in Chapter 11, is handling the Neiman Marcus case.

Neiman said it intends to shutter a few of its more than 40 namesake stores that it leases.

However, court filings show Neiman Marcus intends to keep its store at Fashion Island in Newport Beach. It owns the 153,000-square-foot building, which was built in 1978, regulatory filings indicate.

That store is conveniently just across the street from the headquarters of its largest stakeholder.

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Peter J. Brennan
Peter J. Brennan
Peter J. Brennan has been a journalist for 40 years. He spent a decade in Latin America covering wars, narcotic traffickers, earthquakes, and business. His resume includes 15 years at Bloomberg News where his headlines and articles sometimes moved the market caps of companies he covered by hundreds of millions of dollars. His articles have been published worldwide, including the New York Times and the Washington Post; he's appeared on CNN, CBC, BBC, and Bloomberg TV. He was awarded a Kiplinger Fellowship at The Ohio State University.

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