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Quarrel Ratchets Up Between Debt-Laden Neiman Marcus And Unhappy Creditor

A Neiman Marcus store in Boston

Neiman Marcus has reached a preliminary deal with many of its creditors to give the retailer three more years to pay its debts, but not all of its creditors are happy about the arrangement.

Dan Kamensky, founder of hedge fund Marble Ridge Capital, objected in particular to the part of the deal in which Dallas-based Neiman Marcus will swap current borrowings for new obligations, Bloomberg reports

That would allow other creditors who made bets against the company in the credit derivatives market to profit from the extension they gave to the struggling department store. Kamensky characterized the deal as a "devil's bargain."

“This seemingly innocuous provision [was] presumably struck by the company at the behest of the sponsors to create a massive windfall for a subset of creditors betting against the company,” Kamensky wrote in an open letter. "The consequences to the Company and its stakeholders of creating a market betting on its demise are entirely foreseeable to the Sponsors."

Such betting is not unusual, Bloomberg notes. Creditors seeking to profit from derivative bets (specifically, credit default swaps) have helped prop up a variety of ailing companies, including grocers, newspaper chains and homebuilders.

Neiman Marcus, which is groaning under about $5B in debt — and considered a retailer on the edge of the abyss by some reckonings — asserts that the agreement will provide it ample runway to turn around, and pooh-poohs critics like Kamensky, characterizing Marble Ridge as a "small holder."

Besides the credit default swaps, a major bone of contention between Neiman Marcus and Marble Ridge has been the company's lucrative MyTheresa online business. 

Marble Ridge is suing the retailer, alleging that Neiman Marcus is trying to put MyTheresa out of the reach of creditors, Retail Dive reports.