Neiman Marcus creditor questions whether MyTheresa shuffle triggered default

A creditor of Neiman Marcus Group Ltd. is questioning whether the struggling retailer defaulted on its debt by shuffling one of its most promising units beyond the reach of creditors.

Marble Ridge Capital LP said Friday in a statement that Neiman Marcus’ recent transfer of its MyTheresa unit was improper, and may have violated terms of company debt that the New York-based fund holds. Marble Ridge said it sent a Sept. 18 letter to the board demanding the rationale behind the transfer of MyTheresa, the German online luxury retailer, to Neiman Marcus’s corporate parent, a change that could block creditors from making any claims on the unit.

The switch lets Neiman Marcus’s owners, Ares Management LP and Canada Pension Plan Investment Board, “usurp this massive benefit” for no consideration to the company, Marble Ridge said. What’s more, Neiman Marcus was either insolvent at the time of the transfer or was made insolvent by the deal, said the fund, a distressed-debt investor that says it owns 8.75 per cent senior notes and term loans.

“MyTheresa was already an unrestricted, non-guarantor subsidiary not part of our lenders’ collateral and it will remain outside of the collateral,” a representative from Neiman said in a statement to Bloomberg. “This reorganization was expressly permitted by the company’s credit documents.” Representatives for Ares and CPPIB didn’t have an immediate comment on the letter.

Asset Disputes

Neiman Marcus is the latest retailer to ignite controversy over whether such transfers unfairly deprive creditors of claims on assets if a borrower needs to restructure. The dispute could presage a lawsuit over so-called fraudulent conveyance, in which a troubled company purposely moves healthy units beyond the reach of lenders ahead of a reorganization.

Neiman Marcus’ US$4.7 billion in debt gives it a 10 times leverage multiple, far in excess of its peers, Marble Ridge said in its letter. Much of it sells for 70 cents on the dollar or less.

The allegations echo complaints against retailers including PetSmart Inc. and J. Crew Group Inc., who made changes to their capital structures in a way that complicated restructuring talks.

“These recent actions threaten the viability of a storied franchise that includes marquee brands such as Neiman Marcus and Bergdorf Goodman,” Dan Kamensky, managing partner of Marble Ridge, said in the statement.

Bloomberg.com

CPPIB head says U.S. inflation a potential risk, but threat of overheated economy anything but imminent

The chief executive of the Canada Pension Plan Investment Board on Friday said U.S. inflation continues to pose a risk to the fund, but added those concerns are tempered by strong economic underpinnings south of the border.

“Am I worried about a market where 40 per cent of our money is invested? Absolutely, it’s our biggest market,” Mark Machin said.

Still, he said that risks to the U.S. economy, which would include a spillover into Canada, are likely not imminent.

“The U.S. has been well supported by economic growth,” Machin said. “It has driven earnings growth. The fundamentals in the U.S. are still incredibly strong, and the question now is: how long can that go on?”

In a written message along with CPPIB’s quarterly earnings that were released Friday, Machin said that “solid performance today cushions the fund for an inevitable future market downturn.”

The U.S. is by far CPPIB’s largest market, with $131 billion invested as of March 31, 2018. Canada is next with $54 billion, or 15 per cent of its portfolio, followed by Europe at $47 billion (13 per cent).

Some economists worry that inflationary pressures in the U.S. threaten to spur a market correction, hastened by President Donald Trump’s hefty stimulus plans and a recent tax reform aimed at encouraging business investment. Higher oil prices have also helped fuel inflation.

Rising wage growth in Canada, which observers say could push inflation higher, compounds those worries at home. A recent Bank of Canada survey found 34 per cent of businesses expected to face a labour shortage in the second half of 2018.

In a recent research note, Desjardins Group analysts said the BoC “will have to monitor this situation closely” as wage growth continues to rise while productivity loses ground, threatening to nudge inflationary pressure upward.

The U.S. Federal Reserve hiked its main interest rate in June for the second time this year, up to two per cent. The Bank of Canada in July raised its benchmark rate to 1.5 per cent.

Some market watchers, however, say the risks of the U.S. overheating are exaggerated, driven mainly by stock market volatility and rapid wage growth in a few select sectors such as oil and gas.

The CPPIB on Friday reported net assets of $366.6 billion for the quarter ended June 30, compared with $356.1 billion at the end of March. It reported net investment returns of 1.8 per cent, largely tied to its private-asset holdings.

In May, CPPIB reported an 11.6-per-cent return on investments during the last fiscal year, but warned that such double-digit growth was not sustainable as competition for assets intensifies.

That competition has been particularly visible for renewable energy assets as private equity floods into the market while previous asset holders shed their positions. That has pushed valuations sharply higher as various governments introduce stringent climate policies and offer incentives to would-be developers.

“It’s been fairly expensive for the last few years around the world, there’s a lot of capital chasing renewables,” Machin said. “We’ve found it difficult to find assets that we wanted.”

Over the quarter, the fund purchased a stake in various onshore renewable assets in North America and offshore wind projects in Germany from Enbridge Inc. for $2.25 billion. CPPIB also purchased 396 megawatts of renewable capacity from its subsidiary, Cordelio Power, for $740 million.

Large investment funds have flocked to renewables as they become increasingly competitive and offer stable returns for investors.

“We’re not going after them because they’re renewables, we’re not filling a bucket of renewables,” Machin said. “We have a view that the energy transition is underway.”

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Canada pension plan reports 1.8% return in latest quarter

TORONTO — The Canada Pension Plan Investment Board (CPPIB), Canada’s biggest public plan, said on Friday it delivered net investment returns of 1.8 per cent in the latest quarter, benefiting from strong performance in assets that are not publicly traded.

The CPPIB, which manages Canada’s national pension fund and invests on behalf of 20 million Canadians, has become one of the world’s biggest investors in infrastructure and real estate, helping it diversify and reduce its exposure to volatile global equity markets and low-yielding government bonds.

“We are confident that our investment strategy will continue to serve the fund through multiple economic cycles,” Chief Executive Officer Mark Machin said in a statement.

The fund had net assets of $366.6 billion for the quarter ended June 30, compared with $356.1 billion at the end of March, it said.

In May, CPPIB reported an 11.6 per cent return on investments in its latest fiscal year but warned that double-digit growth was not sustainable with competition for assets intensifying.

© Thomson Reuters 2018

Canada Pension Plan sets record for country’s largest green bond in $1.5-billion debut

Canada Pension Plan Investment Board went green with a bang.

The pension fund, which boasts the highest credit score at the three largest rating firms, priced $1.5 billion (US$1.15 billion) of green bonds Wednesday in what it called the first green bond sold by a pension fund globally. It was also a record size for a single green bond transaction in Canada, according to Bloomberg data.

The 10-year bonds, sold via its unit CPPIB Capital Inc., were sold at a spread of 71 basis points over similar-maturity federal government bonds and offer a 3 percent coupon. They attracted 79 buyers with demand at $2.7 billion, according to a CPPIB statement. The sale was led by CIBC World Markets Inc. and RBC Dominion Securities Inc.

“I like the AAA and the spread is attractive given the credit support,” said Mark Carpani, who helps manage $1.2 billion as head of fixed income at Toronto-based Ridgewood Capital Asset Management and bought the CPPIB green bonds. “CPPIB will put proceeds to good use so I’m fine supporting this.”

CPPIB’s new debt dethrones Ontario’s securities due 2025 as the country’s largest green bond in Canadian dollars. The province’s outstanding securities due 2023 stand at $1.55 billion, yet that total was split between two offerings; an initial $750 million was sold in January 2016, followed by a $800 million add-on of the same notes a year later.

Canada’s green bond issuance has recently been dominated by provincial governments, but an increasing number of other issuers such as insurers and municipalities have been making forays into the market lately too.

In November, Manulife Financial Corp. became the world’s first life insurer to sell green bonds when it priced securities in Singapore dollars. The company followed that transaction in May with the first corporate green bond in Canadian dollars since 2015. The city of Ottawa sold green bonds in November, while Toronto seeks to follow suit in the second half of this year.

CPPIB’s green-bond framework allows for investments in wind and solar energy, sustainable water and wastewater management, as well as green buildings. It plans to invest more than $3 billion in renewable energy as it prepares for an expected global transition to a lower-carbon economy.

CPPIB invests on behalf of the $356.1 billion Canada Pension Plan. It started issuing debt in 2015, selling bonds in both Canadian and U.S. dollars and the euro since.

Bloomberg.com

CPP Investment Board approached about Trans Mountain, but no decision yet: CEO

OTTAWA — The head of the Canada Pension Plan Investment Board says the federal government’s financial adviser has raised the possibility of getting involved in the Trans Mountain pipeline project but there’s been no political pressure applied.

CPPIB chief executive Mark Machin says that the Toronto-based fund manager and its peers will likely take a look at the stalled Trans Mountain project because there are a limited number of investment opportunities of its magnitude.

Machin’s comments to the House of Commons finance committee come less than two weeks after the government announced it would buy the project for $4.5 billion from Kinder Morgan to ensure the pipeline will be completed.

Finance Minister Bill Morneau has predicted the Trudeau government will have no difficulty selling the Trans Mountain pipeline expansion project after uncertainty about its future is resolved.

The federal government’s hand was forced by B.C. Premier John Horgan, who is waging a court battle over the federally regulated pipeline, which would carry diluted bitumen from Alberta’s oilsands to a sea port near Vancouver.

Machin told the finance committee that the Canada Pension Plan Investment Board has had both good and bad experiences with pipelines and will use its usual approach when deciding whether to put money into Trans Mountain.

Inside the CPP Investment Board: Why CPPIB is working with China to help it tackle it’s aging population problem

The Financial Post’s Barbara Shecter speaks with Mark Machin, CEO of Canada Pension Plan Investment Board, on their bond program and lessons from China’s aging population.

Inside the CPP Investment Board: The reasons behind CPPIB’s decision to invest substantially in renewable energy

The Financial Post’s Barbara Shecter speaks with Mark Machin, CEO of Canada Pension Plan Investment Board, on how the CPPIB selects long-term investments and their decision to substantially invest in renewable energy.

Inside the CPP Investment Board: Many Canadians think CPP won’t be there for them at retirement — they couldn’t be more wrong

The Financial Post’s Barbara Shecter speaks with Mark Machin, CEO of Canada Pension Plan Investment Board, about the key misconceptions Canadians have of the CPP, as well as the major changes that have been made to strengthen the pension plan.