Sellers have been offering the debt at around 96 cents on the dollar, albeit in small increments of $2 million or so, said the people, asking not to be identified because the information is confidential. The selling came as creditors had until the end of day Friday to agree to some favorable terms on a $2.2 billion debt exchange.
Saks officials did not immediate respond to messages seeking comment.
The retailer launched a debt exchange on July 21, following weeks of negotiations with creditors. The deal rearranges repayment priorities and creates different tiers, including new second-out and third-out securities. Creditors who don’t participate in the exchange would be relegated to the bottom of the debt stack as a fourth-out and lose creditor safeguards known as covenants.
Quotes for the company’s already distressed debt tumbled even more this week. Its first-lien second-out note is quoted at around 48 cents on the dollar, while its third-out piece is indicated at 23 cents, according to pricing sheets viewed by Bloomberg.
Meanwhile, the company’s $2.2 billion of 11% bonds, which were issued in December, were trading Friday at 23 cents, down from a 35 cents on July 22, according to pricing firm Trace.
“The general terms of the exchange have been known since late June,” said Peter Sakon, senior special situations analyst at CreditSights. “So the price decline for the second-out is largely due to weak sector fundamentals, highlighted by LVMH’s 9% drop in 2Q Fashion and Leather Goods revenue.”
As part of a $600 million deal the luxury retailer agreed to on June 27, Saks immediately got half of the financing from an ad hoc group of bondholders that own a slim majority of its 11% notes, Bloomberg previously reported.
Saks has been working to raise the other portion of the financing and discussing the terms of the exchange with its minority creditors. Those bondholders would take losses and trade their outstanding notes for new securities that are lower on the capital structure. The majority holders would bridge any shortfall in fundraising for the second $300 million.
The retailer operates its flagship Saks Fifth Avenue store in New York City alongside Bergdorf Goodman and Neiman Marcus shops, two rival chains it purchased last year.
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