Saks Mulls Bankruptcy After Raising Billions for Turnaround

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00:00How soon are we talking? What's pushed them over the edge here?

00:04Well, it's important to note that SACS has been struggling almost from jump from as soon as they

00:10completed this merger with Neiman Marcus. And that was only one year ago today. And by the

00:16middle of this year, they were raising more money from the lenders whose bonds were trading

00:21at about half of their face value in order to pursue a turnaround and give themselves more

00:26runway. So those lenders threw even more money after what they had provided in December to fund

00:32the acquisition. And now they're looking at a wipeout of much of that value.

00:36I am curious, Eliza, whether what ails SACS is indicative of something broader in the

00:43luxury retail landscape or whether this is something that was more specific to how SACS itself was being

00:50managed. I think it's somewhat specific that the company did raise quite a lot of debt to fund

00:56this merger. SACS was struggling already, but this was a swing, a swinging hard to try to really come

01:04back strong and dominate the luxury space. But it was an expensive effort. So if it didn't go really

01:12well from the start, it was always going to be that that debt would become a burden. And one thing that

01:18I think is also specific to SACS in this case is that prior to the tie-up last year, they had legacy

01:25issues with their vendor relationships. They had had to or chosen to pay a lot of suppliers late.

01:32And that created what commonly turns into a death spiral in retail where you're not paying your

01:38suppliers because you can't afford to, but then they're not sending you inventory. So then you have

01:41nothing to bring shoppers in and then you have even less money coming in to pay your suppliers. And that's been

01:47a real issue for SACS for many years, but especially this year, or at least continuing into

01:53this year. And inventory has been low.

01:56Yeah. And yeah, anytime you lose suppliers, that's pretty much the kiss of death in the retail sector.

02:01I am curious though, Eliza, based on your reporting, if there's any sense here that somebody would be

02:05willing to pick up this company, if not now, maybe out of bankruptcy. I mean, SACS, Neiman Marcus,

02:10maybe to a smaller extent Bergdorf. I mean, some of the most iconic brand names when it comes to luxury

02:15retail, I can't imagine they're just going to disappear.

02:18Right. There's certainly no reason to assume at this point that they would disappear.

02:22What is common in a bankruptcy like this would be that some of the lenders who did supply that

02:27more than $2 billion worth of financing last year, they are still the biggest creditors to SACS and

02:33they could likely take over some or all of it in the bankruptcy process. SACS will certainly also run

02:39a sale process for third-party bidders and those lenders will also likely run their own process.

02:45But SACS has been saying for months now that it is in the market to sell a minority stake in Bergdorf-Goodman.

02:52And it has said, the CEO has said publicly that he was running into interest in that and that they had

02:59bidders lined up. But I think as things deteriorated, it becomes clear that, you know,

03:05no bidder, even if they are lining up, is going to buy it. If the company is otherwise going to go

03:10into bankruptcy, they're not going to buy it before the bankruptcy. They want to come in and buy it

03:13in bankruptcy where it's cheaper. So that could still happen as well. Some of these individual names

03:18could fetch high bids from trademark or intellectual property investors.