The negotiations come after Saks last month reported an adjusted loss of more than US$100mil for its financial year ended Feb 1. — Bloomberg
NEW YORK: Just as embattled Saks Global Enterprises faces the first interest payment on debt it incurred to buy rival Neiman Marcus Group, the company is looking to tap investors for even more funding.
The luxury retailer is in talks with some holders of its US$2.2bil in senior secured bonds about borrowing up to an additional US$600mil from them, according to people familiar with the talks.
The plans are in advanced stages but not yet final, said the people, who declined to be identified discussing private information.
The negotiations come after Saks last month reported an adjusted loss of more than US$100mil for its financial year ended Feb 1, and as it grapples with a backlog of vendor payments, potential trade restrictions, and restless bondholders.
Despite its struggles, Saks plans to make its upcoming coupon payment – about US$120mil due June 30 – said some of the people.
A representative for the company declined to comment. Representatives for a majority group of bondholders didn’t respond to requests for comment.
Saks closed on its US$2.7bil acquisition of Neiman Marcus last December, with a plan to combine some operations of both department stores in order to cut costs and become more efficient and profitable.
While Saks on its own lost money in its most recent financial year, the companies combined had adjusted earnings of around US$161mil in the period.
Only a few months into the takeover, though, the US$2.2bil in bonds that helped finance the deal to acquire Neiman Marcus were trading at distressed levels as holders fretted about the quality of their claims and protections under the debt’s documentation.
The loose terms began to look worrisome.
Meanwhile, even as wealthy consumers have continued to spend despite financial market turmoil and uncertainty about the US economic outlook, more cost-conscious shoppers have turned cautious in recent months, dragging on growth.
S&P Global Ratings, which grades the bonds at B, or five levels below investment-grade, said in a report there was at least a 50% chance it would lower Saks’ credit grade by up to two levels in the next few months.
With its fortunes in flux, management in late April held a conference call to update money managers, and said it was mulling ways to monetise some of its real estate assets to shore up its finances.
In a separate interview with Bloomberg, Saks chief executive officer Mark Metrick said the company was looking to raise up to US$350mil in new debt through a so-called first-in, last-out loan under its existing US$1.8bil revolving credit facility.
The US$600mil in potential new funding would replace that US$350mil financing, the people said.
Mickey Chadha, vice-president of corporate finance at Moody’s Ratings – which also grades the bonds B – said in an interview last Friday that “profitability levels at this moment aren’t enough to sustain” the capital structure.
“You can’t squeeze any more synergies out of something that’s not growing,” Chadha said. “The whole point is that they need to actually grow.” — Bloomberg
