Saks’ Burned Bondholders Fight Over Funding Any Bankruptcy Loan

Lenders to Saks Global Enterprises are grappling with a pressing question as it hurtles toward bankruptcy: How much — if anything at all — should they loan to the cash-strapped luxury retailer?

Some existing creditors want to back a so-called debtor-in-possession loan of $1 billion or more so Saks can keep the lights on at its stores during a Chapter 11 process, according to people with knowledge of the matter. Others, though, are weighing whether to throw in the towel, said the people, who asked not to be named because the discussions are private.

While the specifics around any new bankruptcy debt package for Saks remain highly fluid, some lenders on Wednesday were closing in on terms that would provide $1 billion of new money, the people said. There are ongoing discussions around the cost of funding with the company, and the details haven’t been finalised, they said.

A failure to win support for a sufficiently large financing package raises the risk that Saks could be forced to consider liquidating, rather than undergoing a court-supervised reorganisation. The company has been negotiating a forbearance with some of its creditors, which could buy it more time to reach a financing agreement or devise a restructuring plan, Bloomberg reported this week.

Saks declined to comment. A representative with company adviser PJT Partners Inc. didn’t respond to requests for comment. Lazard Inc., a creditor adviser, declined to comment, while Paul Weiss Rifkind Wharton & Garrison, also an adviser, didn’t respond to a request for comment.

FTI Consulting Inc. is also advising creditors, according to people familiar with the matter. The firm declined to comment.

The department-store chain, which operates its flagship Saks Fifth Avenue locations along with Bergdorf Goodman and Neiman Marcus, is nearing a breaking point just a year after raising billions of dollars from bond investors to finance an ambitious turnaround plan. Late last month it missed an interest payment totalling more than $100 million.

The deterioration comes despite a June deal in which one group of creditors agreed to lend the company hundreds of millions of dollars more in exchange for a higher place in the repayment order.

As part of that arrangement, the credit agreement governing Saks’ $1.8 billion asset-backed lending facility was amended to include revised minimum excess liquidity thresholds that the company agreed upon, according to people familiar with the matter. Saks has underperformed since then, the people said.

The way in which auto-parts supplier First Brands Group’s bankruptcy has unfolded looms large for some lenders, the people added. The company’s $1.1 billion of super-senior debt has cratered from 100 cents on the dollar to less than 20 cents as of this week, a sign that the loan amount was insufficient to cover the costs associated with untangling its web of issues.

In Saks’ case, some lenders worry that advisory fees, vendor payments and interest costs could similarly overwhelm any rescue package for the company, which already cut its 2025 earnings guidance after softer-than-expected results tied to inventory challenges, some people familiar with the matter said.

Saks creditors have demanded certain milestones be put in place as part of any financing, the people said. One iteration of a DIP loan discussed by bondholders included at least $750 million of new money and a potential roll-up of existing debt, Bloomberg previously reported.

But a roll-up becomes increasingly unlikely as the company’s debt slides deeper into distress. Saks’ $762 million of first-lien bonds, issued as part of last year’s restructuring, have fallen to as low as 30 cents on the dollar, while the $941 million portion of second-out notes have plunged to around 6 cents.

Saks has explored filing for Chapter 11 protection in the Southern District of Texas, though a venue hasn’t been finalised, separate people familiar with the matter said.

By Reshmi Basu and Eliza Ronalds-Hannon