Saks Did Not Update Cash Burn Guidance as Cash Flow, Execution Uncertainties Put Downward Pressure on Bond Prices

Saks Global did not provide an update for its cash burn guidance provided in December 2024 for full-year 2025 as part of its flash release of fourth-quarter earnings today, according to sources. The uncertainty surrounding its ability to generate free cash flow, as well as execution risk after a tie-up with Neiman Marcus, pushed down bond prices further to almost half of par value, according to sources.

The luxury department store chain did not provide additional color on the $75 million to $100 million cash burn guidance it previously provided, reflecting the difficulty of quantifying the impact of tariff policy developments since President Donald Trump’s “Liberation Day,” the sources said.

The company said it had $350 million to $375 million of liquidity, and, pro forma a $300 million first-in, last-out facility that Saks is considering, liquidity would be about $700 million, the sources said. The company’s $1.8 billion ABL facility has an about $900 million borrowing base, the sources said.
Management said today on a call with investors that its liquidity is adequate and should be sufficient for 2025, they added.

Saks said it has a number of options to bolster its liquidity, which is a priority, including using noncore asset sales and real estate, among others. In response to an analyst question about selling real estate to pay down the bond at above par, management said that it was not a focus at the moment, the sources said. The bonds last traded in size at 52.5, compared with 67.5 on April 25 after Octus, formerly Reorg, reported on a potential first in, last out facility, and 72.5 on April 22, before the FILO news, according to TRACE.

On the bright side, the company mentioned inventory flow has improved and noted $150 million of cost synergies, according to sources.

IP Releases

Investors have also noted Saks’ recent maneuver of releasing the security interest of certain intellectual properties in guarantors from the ABL facility and the secured notes, according to sources.

The luxury department store chain has been filing trademark security interest assignment, transfer and release documents publicly since December 2024, as Saks completed its acquisition of Neiman Marcus, according to public records.

In a Dec. 23, 2024, document, guarantors of the ABL facility, including NMG Interco LLC, The Neiman Marcus Group LLC, Saks.com LLC, and Saks & Co. LLC pledged to the collateral agent Bank of America a security interest in the guarantor’s right in certain intellectual property, including that of Bergdorf Goodman, Neiman Marcus, Horchow, Last Call, Saks Fifth Avenue and Saks OFF 5TH, in a number of countries.

In a Dec. 26, 2024, document, guarantors of the notes, the same as those of the ABL facility, pledged to collateral agent Citibank a security interest in the guarantor’s right in a series of IP as well.

In two documents dated Jan. 21, NMG Interco LLC assigned its IP to NMP IP Holdings LLC, and Saks.com LLC assigned its IP to Saks Global IP Holdings LLC, both effective Dec. 23, 2024.

In a document dated Feb. 3, Bank of America as the ABL’s administrative agent and the collateral agent, released the security interest in certain IPs granted by the above-mentioned guarantors.

In a resubmission dated April 10, Citibank as the notes’ collateral agent acknowledged the release, termination and discharge of the security interest in certain IPs granted by the above-mentioned guarantors.

According to an Octus analysis, the company disclosed in the offering memorandum for the 2029 secured notes offering in December 2024 that Saks’ IP would initially be pledged as collateral but that “[t]he covenants in the Indenture will permit intellectual property to be moved into a designated IPCo subsidiary that does not guarantee the [2029 secured notes],” subject to certain conditions, including that equity in the designated IPCo subsidiary is pledged as collateral.

The OM also indicates that the 2029 secured notes will “permit certain intellectual property to be subject to an exclusive license” to Authentic Luxury Group, a planned joint venture with Authentic that “would serve as a brand incubator, and would create significant growth opportunities for leading luxury names, such as Barneys New York, Hervé Léger, Judith Leiber Couture and Vince … through strategic licensing agreements and distribution channels across fashion, retail, digital, hospitality, real estate, art and travel.”

Accordingly, the OM terms will allow transfers of intellectual property to a “Designated IPCo Subsidiary,” which will not be required to guarantee the notes but will prohibit any such subsidiary from incurring or securing any debt, except in connection with certain IP licenses, according to the Octus analysis.

An estimate of the company’s capital structure is shown below:
 

Saks did not respond to a request for comment.