Saks Global Files for Chapter 11 Bankruptcy

Upmarket retailer Saks Global filed for Chapter 11 bankruptcy yesterday, forcing them to close down stores and give away items at massive sales.

Saks Global is one of the most prominent upmarket retailers in the United States, known for its high-quality, luxury goods from various aspects of the market. Within their brands, they bring high-end items under one roof, allowing customers to find a variety of luxury brands within one department store. Saks also holds seasonal sales and other promotions that high-end brands alone may not offer, giving the store serious appeal to the wealthier portion of the market.

However, they are now closing stores after filing for Chapter 11 bankruptcy. Companies often file for Chapter 11 bankruptcy during times of extreme economic difficulty– right now, many people have begun to shift to online shopping or have avoided shopping altogether due to the shaky economic state of the US, leaving malls and department stores empty.

After filing for Chapter 11 bankruptcy, companies are allowed to keep running their business instead of liquidating assets– instead, it gives them a platform to reorganize their debts and restructure the company while keeping the business running. Nevertheless, companies still shutter stores during this time to help ease back into a normal rhythm.

In the case of Saks, they have secured $1.75 billion from investors to help reorganize their debts, which will have to be paid back at some point in time.

Around $1 billion of that is a DIP loan, or debtor-in-possession. DIP loans serve as emergency funding for the company, and in Saks' case, they are being funded by existing bondholders like Pentwater and Bracebridge (two major hedge funds) who invested in Saks prior to its bankruptcy and are now providing extra money to protect their past investments.

This loan will allow many stores to stay open, and employees will continue to be paid. A judge, though, has only allowed $400 million to be released to Saks at this moment, preventing them from misusing the money and allowing them to ask for more later on if the restructuring efforts prove successful.

On top of this, they have received around $250 million in asset-based lending, a process where certain lenders give the company loans, but only on a measurable amount of assets that can be taken by the lenders if the company fails to pay the loan back. In this case, the primary lender is Bank of America, but there are others chipping into that $250 million.

Finally, the remaining $500 million is post-bankruptcy equity, which will be given to the company after they escape bankruptcy. Once Saks gets out of bankruptcy, bondholders will provide the company with another $500 million, and Saks will give them ownership over some of the business in return for their funds. This largely wipes out shareholders, who lose out on their investments while bondholders take control during and after Chapter 11.

The move to file bankruptcy, though, represents a larger issue in the upmarket retail industry– a lack of customers. Countless brands have seen serious declines in sales since the coronavirus pandemic, including Saks subsidiary Neiman Marcus. Neiman Marcus filed for bankruptcy in 2020 before being purchased by Saks Global last year for $2.7 billion. Saks hoped to create a luxury retail giant, but their debts simply continued to increase from there.

Nevertheless, Saks will hope to restructure efficiently and effectively following their Chapter 11 filing, helping the company stay alive amid tough economic times. Customers, on the other hand, can take advantage of Saks' situation– some Saks Fifth Avenue stores are offering goods at up to 85% off, creating an incredible opportunity for Saks customers to purchase luxury goods at prices well below their usual.

Fact of the Day (The Fact Site): The Saks Fifth Avenue flagship store in New York City has such a massive shoe department on the eighth floor that it was granted its own zip code by the US Postal Service: 10022–SHOE.

Quote of the Day (Gracious Quotes): Have patience with all things, But, first of all with yourself. (Saint Francis de Sales)

Word of the Day (Merriam-Webster): Delegate (verb, DEL-uh-gayt) - To delegate something (such as control, responsibility, authority, or a job or duty) is to trust someone else with it.

In a Sentence: Those tasks can be delegated to someone else.

Image credit to AP