Hype Man: Marc Metrick's Saks is a cluttered closet full of discounts
Selling deals is a hype game. Disclosure rules are loose and going to get looser. But gatekeepers — lawyers, investment bankers, and Big 4 global audit firms — win all the time.
Bill Cohan is friends with everyone. His long career as a journalist, author, and banker has earned him those benefits. I am happy to have made his acquaintance back in the financial crisis era.
He was kind enough to speak to my Wharton students back in 2022 about his career as his GE book, Power Failure, was coming out.
Bill is a co-founder of media site Puck, and started writing about Saks Global — the $2.7 billion roll-up of luxury retailers Saks Fifth Avenue and NMG, the parent company of Neiman Marcus and Bergdorf Goodman — in late April as financial strains began to show.
"The interest rate on the bond was 11 percent, senior, and secured by the company’s assets. At the time, the yield on the average junk bond was 7.25 percent, while the yield on the 10-year Treasury was about 4.5 percent. Offering investors an 11 percent senior secured bond represented a tasty spread.
But there was also obviously plenty of risk in owning this particular security. S&P Global, the ratings agency behemoth, gave Saks Global a credit rating of CCC+, solidly in junk-bond territory and indicative of its post-deal “unsustainable” capital structure—which, in S&P’s view was “highly dependent on favorable business, economic, and financial conditions, including significant synergies from the proposed acquisition.” And that was before Trump kicked off his tariffpalooza.
S&P figured the company’s leverage ratio in 2025 would remain “very high”—in the mid 9x debt-to-adjusted EBITDA range. The ratings agency also expected a free operating cash flow loss of $130 million in 2025, on revenue somewhere in the vicinity of $7 billion, and doubted whether Saks’ EBITDA in 2025 would be sufficient to cover its interest expense, “which highlights risks of less-than-expected synergy generation that could eventually lead to liquidity pressure.”
Saks is a private company, with a big, publicly traded debt issue. But while the debt is public, its financial statements are private, and Saks does not make any filings with the S.E.C. Its bond prospectus is not publicly available, either, which is a bit odd, given the size of the offering and prominence of the company. I asked for a copy of the prospectus so I could see what it had to say about the pro forma earnings of the Saks-Neiman combination, but Nicole Schoenberg, Saks’ head of communications, said it was available only to prospective accredited institutional investors, not me."
So, Saks started doing what every other company "conserving" cash does: stiff vendors. More from Cohan on April 20:
"...on Valentine’s Day. That’s when Marc Metrick, the Saks Global C.E.O., wrote a letter to company vendors informing them that Saks would henceforth pay them after 90 days, rather than the customary 30.
“Stretching payables,” as this tactic is known on Wall Street, is sometimes (but not always) indicative of emerging financial difficulties. Furthermore, Metrick wrote that Saks would not pay its overdue bills to vendors until July, and would pay them off in 12 monthly installments. “It was the letter heard around the world,” Lauren observed. Vendors were outraged."
Most investors paid close to 100 cents on the dollar, so a slight discount bond, last December. But, from Trump's Inauguration Day, January 20, the bonds' price has been falling. On "Liberation Day" — the day Trump announced his tariff plan — the bonds plunged. By Good Friday, April 18, the bonds were trading at 72 cents on the dollar.
A week later, April 27, Bill was sounding the alarm.
“A close look at whether Saks Global, several months after acquiring Neiman Marcus Group for $2.7 billion, can make its initial $120 million-ish interest payment to bondholders at the end of June.
At last check, the $2.2 billion publicly traded Saks senior secured bond, due 2029, which pays 11 percent interest, is now trading at 67 cents on the dollar and yielding 22 percent. This is not a good situation for bondholders, who have watched the bond lose a third of its value in the four months since it was issued last December as part of Saks’ $2.7 billion acquisition of Neiman Marcus Group. Nor is it good for the company itself—which, of course, has a roughly $120 million interest payment due on the bonds at the end of June.”
Bill likes this story because, as he wrote on May 4, he "marvel[s] at the ability of Wall Street bankers to sell something that probably should never have been sold in the first place." He continues to be concerned that Saks will struggle to make the roughly $120 million interest payment due on the bonds at the end of June.
Bill used his contacts to get a copy of the prospectus — all 400 plus pages — and started digging in. He's also shared the "preliminary Offering Memorandum" with me.
PRELIMINARY OFFERING MEMORANDUM CONFIDENTIAL
$2,000,000,000
SFA Issuer LLC
to be merged with and into
Saks Global Enterprises LLC
% Senior Secured Notes due 2029
After the paywall, I’ll dig into the myriad ways Saks is trying to get to a sufficiently positive number that will instill confidence it can make its June debt payment. It is not going to be easy!