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S&P Global Ratings downgraded Saks Global Enterprises LLC credit rating by three notches after the company announced a $600 million financing package that includes a debt exchange.
Saks’ issuer credit rating is now CC — 10 rungs below investment grade — the same as for the issuer level rating on its notes, which was downgraded by five notches. The new debt deal will rearrange repayment priorities should the company fail to meet its obligations, Bloomberg previously reported.
“The downgrade reflects our view that the proposed financing transaction is tantamount to a default,” S&P said.
As part of the complex arrangement, a group holding a slim majority of the struggling luxury retailer’s $2.2 billion of 11 percent bonds, which were issued in December, will provide Saks an immediate $300 million loan. That debt would be among the first to be repaid if the company goes bust.
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The transaction also includes a $400 million first-in, last out asset-based credit facility and additional commitments of $200 million that are subject to certain conditions, according to S&P. Also, $100 million of the new FILO facility will comprise an exchange of its senior secured notes.
The retailer operates its flagship Saks Fifth Avenue store in New York City alongside Bergdorf Goodman and Neiman Marcus shops, two rival chains it purchased last year. According to S&P, Saks’ inventory flow has been disrupted and led “a pronounced deterioration in its operating performance and liquidity challenges.”
The retailer has overdue payments, a constrained borrowing base and seasonal inventory build-up, which caused its $1.8 billion asset-based lending facility to dwindle to $415 million at the start of February.
“While Saks has real estate assets worth over $4 billion on a net basis, it has been unable to monetize them in a timely manner to meet its financial commitments,” S&P said.
Upon completion of the transaction, S&P expects to lower its issuer credit rating and issue-level ratings on Saks to selective default or default.
By Georgia Hall
Learn more:
Saks Is Ceding Ground to Luxury Rivals After Buying Neiman Marcus
The $2.7 billion acquisition was intended to strengthen the department stores’ positions as luxury giants, but now both are struggling against competitors like Nordstrom and Bloomingdale’s.
