Saks Majority Group Turns Away Additional Noteholders; Investors Highlight $300M HoldCo Seller Note

An ad hoc group of Saks bondholders that represent at least 50.1% of the $2.2 billion 11% secured notes have rejected additional holders from joining the group, according to sources.

Paul Weiss and Lazard, as advisors to the majority noteholder group, are so far still in touch and communicating with noteholders outside the group, which indicates that an aggressive, non-pro-rata liability management exercise is too early to be a sure bet, the sources said. Paul Weiss and Lazard have reached out to Saks’ advisors Kirkland & Ellis and PJT Partners, who listened to the creditor side’s input, they added.

A lack of information from Saks, combined with the bond price now at less than half of the face value merely months from the issuance, has provoked investor ire. The company’s December 2024 bond deal, dubbed “Project Black Caviar,” has not even paid its first semiannual coupon yet.

The 11% notes last traded in size at 47.625 today, down almost 25 points since before Octus reported on April 23 that the company was seeking a potential first-in, last-out facility, according to TRACE. Saks has a $121 million coupon payment due on the bonds on June 30.

The majority group may implement a cooperation agreement to formalize its requisite majority status, and market liquidity can be preserved if certain trading language is baked into the co-op agreement, they added. Minority bondholders are seeking advice from Glenn Agre.

Investors have also been scrutinizing about $300 million of seller notes due 2026 at the holding company level that many previously did not know about, according to sources. The debt is held by Davidson Kempner, Sixth Street and Pimco, the sources said. The seller note went to the Neiman Marcus stakeholders as part of Saks’ acquisition. The seller note, which pays PIK interest and has a regular mandatory payment requirement, may have to be addressed soon considering its maturity, potentially as part of a broader LME with bondholders, the sources said.

So far, advisors have informed investors in Saks that the first-in, last-out facility that the company is seeking is not a debtor-in-possession financing disguised as a FILO, according to sources. This means that the retailer is not likely to file for chapter 11 in the near future to address its liquidity and vendor issues, the sources said.

Paul Weiss and Lazard have also told bondholders that Saks has about $200 million of debt capacity on top of the about $300 million FILO, indicating a potential $500 million new-money raise, the sources said. A process run by Bank of America for a potential FILO has been progressing as term sheets from prospective investors are evaluated, according to sources. The bondholder group may put forth its own FILO proposal, since the FILO lender will be ahead of existing bondholders with regard to the ABL priority collateral, they added.

The company’s fourth-quarter and full-year 2024 earnings flash on April 28 added to investors’ worry after showing a worse-than-expected liquidity snapshot and uncertain cash burn outlook. Octus, formerly Reorg, previously summarized Saks’ moves to release the security interest of certain intellectual properties in guarantors.
 

Saks, Kirkland & Ellis, PJT Partners, Paul Weiss, Lazard, Sixth Street and Pimco did not respond to requests for comment. Davidson Kempner declined to comment.