Saks Global is now battling with not only unpaid vendors but also its investor Amazon, as the online giant cries foul and tries to block financing for the luxury retailer’s Chapter 11 reorganization.
Attorneys for New York-based Saks Global — parent of iconic luxury chain Bergdorf Goodman as well as Saks Fifth Avenue and Neiman Marcus — argued their case at a bankruptcy court hearing this week on the firm's Chapter 11 filing. They are seeking approval for the $1.75 billion its creditors are extending to keep the company afloat — debtor-in-possession financing the court needs to approve.
Amazon turned out to be the most vocal objector to the lending plan, potentially derailing Saks Global's reorganization and future. Over Amazon's objections, the judge on Wednesday released an interim $400 million of the debtor-in-possession financing, which Saks Global said was needed for its immediate survival, with $34 million in bills due Thursday.
The sparring marks the first round of what promises to be a contentious and complex Chapter 11 proceeding, one that's expected to determine the fate of Saks Global and its iconic chains.
Amazon paid $475 million to take a stake in Saks Global at the time of the Neiman Marcus acquisition in 2024.
"That equity investment is now presumptively worthless after Saks continuously failed to meet its budgets, burned through hundreds of millions of dollars in less than a year, and ran up additional hundreds of millions of dollars in unpaid invoices owed to its retail partners," Amazon said in court documents.
"Overall, there are significant issues to be addressed in these Chapter 11 cases with respect to the debtors’ mismanagement, improper governance and disregard of corporate separateness," Amazon added. During the hearing, Saks Global denied Amazon's allegations.
Procedural drama
The hearing on the first-day pleadings in Houston held significant procedural drama, kicking off Wednesday afternoon and ending 7.5 hours later. When the proceeding started, 251 people were signed up for the GoTo Meeting virtual event, maxing out its capacity, U.S. Bankruptcy Court Judge Alfredo Perez said.
There were also dozens of people listening by phone. Perez later opened a second phone line to accommodate the overflow of people wanting to hear the proceedings.
Right now, the retail industry is pondering how many stores Saks Global will shut as part of the bankruptcy. The company said it plans to emerge from Chapter 11 this year, but what happens remains to be seen.
This marks the second time that Neiman Marcus, now part of Saks Global, has sought Chapter 11 protection. And a number of retailers who have filed for bankruptcy twice, dubbed "Chapter 22," have ended up liquidating.
At the hearing, attorneys referenced Saks Global's plans to analyze its portfolio, which includes 33 Saks Fifth Avenue and 36 Neiman Marcus locations, and optimize its physical footprint. During the past 12 months, Saks Global already shut some stores and sold some land.
In its Chapter 11 filing Wednesday, Saks Global is also seeking approval to reject 26 unexpired leases, one for the closed flagship Saks store in downtown San Francisco and the rest for former Lord & Taylor locations. The Saks location at 384 Post St. went dark last year.
Follows retail dealmaking
The Chapter 11 filing this week came just over a year after Saks Fifth Avenue owner HBC acquired Neiman Marcus Group for $2.7 billion, creating a company called Saks Global. Shortly after the deal closed, Saks Global lawyers said the company was already having problems with liquidity and missing payments to vendors.
As a result, many suppliers stopped shipping goods to Saks' stores, throttling sales. And Saks Global was struggling to make debt payments, missing one for $100 million at the end of December.
This week Saks Global named former Neiman Marcus Group CEO Geoffroy van Raemdonck its CEO, replacing Richard Baker. His to-do list includes mending fences and getting vendors paid so Saks Global's stores can get spring merchandise on their shelves.
Neil Saunders, a retail analyst and managing director at analytics firm GlobalData, said in a note on Wednesday that van Raemdonck has a big challenge ahead of him, issues that will take years to correct.
"If there is one positive from the bankruptcy, it’s that the previous management team has been cleared out," Saunders said. "They bear responsibility for the mess and their reputation with vendors and associates at the firm is thoroughly tarnished. The comeback of Geoffroy van Raemdonck is a sensible choice as he understands retail, luxury, and the brands the group owns. Even so, he will have his work cut out for him to get things back on track."
Saks Global declined to comment on Saunders' remarks.
Properties held in joint venture
The leases that Saks Global is looking to reject are held by a joint venture formed in 2015 between the retail company, then called HBC, giant mall landlord Simon Property Group and other investors. That partnership now holds 31 U.S. properties — including a number of former Lord & Taylor locations.
In court filings, Saks Global said it owns about 62.4% of the equity interests in the joint venture. Each of those properties has been leased back to Saks Global "pursuant to portfolio operating leases, with an initial term of 20 years" with several extensions, court documents said.
Lord & Taylor and Saks Fifth Avenue had entered into individual, triple-net master leases in 2015, leases that included a 2% annual increase in base rent and were guaranteed by then-HBC, according to Morningstar Credit Analytics.
All but one of the 26 leases that Saks Global seeks to reject are for former Lord & Taylor space, much of it at Simon malls. Some of those former Lord & Taylors have been redeveloped or have new tenants, while others remain vacant. But even if there’s a new tenant lined up or redevelopment underway, Saks Global can still be the tenant of record with ongoing obligations and is looking to unwind that situation.
“The path to monetizing these positions is usually an assignment or transfer of the leasehold interest to a new party or re-papering the deal so the end user and the property owner can deal directly," Al Williams, co-president, real estate services, at Gordon Brothers said in an email to CoStar News. "We represent groups that look to acquire leasehold interests in situations like this, so we see this as a common step to create flexibility and tee up a transaction.”
For example, Saks Global is looking to reject leases with Simon and streaming giant Netflix for the first Netflix House, an entertainment-and-shopping venue, at a former Lord & Taylor anchor space at King of Prussia mall in Pennsylvania. Saks Global is also looking to reject the lease that J.C. Penney has to occupy a former Lord & Taylor at the Willowbrook mall in Wayne, New Jersey.
The luxury retail company is asking for court approval to reject a vacant Lord & Taylor store in Westfield, New Jersey. That freestanding building is meant to be part of a mixed-use development that then-HBC, now Saks Global, has had in the works for several years now.
Saks Global declined to comment on the leases, and Simon didn't respond to an email from CoStar News seeking comment. But in court filings, Saks Global said the rejected leases were "non-essential" to its going-forward business and were "uneconomic."
The Saks Global-Simon joint-venture portfolio secures a $428.1 million CMBS, or commercial mortgage-backed securities, loan.
Dallas, New York flagships
In Dallas, Saks Global had agreed to keep the Neiman Marcus downtown flagship open until at least into this year after threatening to close it. Saks Global said it would be discussing prospects for the store and location.
“We are monitoring developments, and we will continue our discussions with the Saks Global management team to ensure their vision for the downtown Dallas Neiman Marcus store becomes a reality,” Dallas City Manager Kimberly Bizor Tolbert said in a statement.
At that Dallas store, the display windows on its south side are empty save for some framed prints. A jewelry area once staffed by armed guards has been transformed into a display on Neiman Marcus' history as well as the Saks acquisition.
The Saks Fifth Avenue flagship in Manhattan was a topic of discussion at the hearing. It is secured by a $1.25 billion interest-only, CMBS loan, not scheduled to mature until January 2035. Last summer, bond-rating firm Morningstar DBRS valued the 10-story property at $1.3 billion, a 63.6% variance from the $3.7 billion appraised value at loan issuance in 2015.
The 20-year fixed-rate loan is secured by the borrower's condominium interest in the building, which has served as Saks' flagship location since 1924.
The loan transaction features a complex ownership structure. HBC retains fee interest in the land through a 99-year absolute triple-net ground lease, with the building owner paying annual rent that reached $96.2 million as of October 2024, up from an initial $62.5 million.
Saks operates under a 30-year lease expiring in December 2044, paying $160 million annually, with up to $20 million in abatements for capital improvements, according to Morningstar.
The property reported net operating income of $67.9 million for the 12 months ended Oct. 31.