EXCLUSIVE-Saks lenders, suppliers in talks to avoid court fight over bankruptcy loan

By Nicholas P. Brown

NEW YORK, Feb 12 (Reuters) - Hoping to avert a court battle, negotiators are racing to resolve a dispute over whether millions of dollars in luxury handbags, clothing and jewelry could be claimed as collateral for Saks' $1.75 billion bankruptcy loan, people familiar with the talks said.

Suppliers in recent weeks sought guarantees that the lenders would not claim collateral rights to Saks inventory on concession or consignment, or its cash proceeds, according to four of the people.

Saks, vendors and the bankruptcy lenders were hopeful on Thursday of securing agreements before a Tuesday deadline to file objections to the loan in court, the people said. Two of the people said talks were nearly complete, but two others said key sticking points remained.

The 100‑year‑old retailer, which filed for Chapter 11 protection last month, has said it could not survive bankruptcy without the debtor-in-possession (DIP) loan, led by Pentwater Capital Management and Bracebridge Capital. It is allowing Saks to keep stores open and pay vendors while it restructures billions in debt.

The conflict underscores the delicate balance of power in Saks’ restructuring. DIP lenders typically have the upper hand in a restructuring, enjoying top-priority liens on a debtor's estate and, in some cases, emerging with equity ownership of the reorganized company.

But in Saks' case, brands hold unusual leverage. Saks' future depends on stocking not just any brands, but a handful of exclusive labels that anchor its luxury image and attract shoppers willing to spend as much as $10,000 on a handbag.

Among them are Chanel, LVMH-owned LVMH.PA Louis Vuitton, Dolce & Gabbana, Christian Louboutin and Kering unit PRTP.PA Gucci.

The sources spoke on condition of anonymity because the talks are private. Saks suppliers' concerns and potential objections to the DIP loan have not been reported previously.

Pentwater and Saks declined to comment, while Bracebridge did not immediately respond to emails requesting comment.

CHANEL IS BIGGEST SAKS CONCESSIONAIRE, SOURCES SAY

The dispute centers on inventory that suppliers continue to own until it is sold, even while it sits on Saks' shelves. This arrangement is common in luxury retail, where labels operate mini‑boutiques inside department stores and supply goods on concession or consignment.

A January court order, which tentatively approved a portion of the DIP loan, included language guaranteeing that concession and consignment property would not be included in lenders' collateral.

Some brands, though, fear the loan structure could give lenders wiggle room to assert claims on concession and consignment property in some circumstances, two of the people said.

The concessionaires want the court to affirm that their goods are not part of Saks' estate. That would mean the vendors retain ownership of the merchandise, rather than holding unsecured claims for it in the bankruptcy.

Two of the sources said that Chanel is by far the biggest Saks concessionaire, and its roughly $136 million claim represents well over half the claims from concession and consignment suppliers. Chanel did not immediately respond to a request for comment.

Smaller boutique labels, like Italian clothier Kiton, have concession claims too, two of the sources said. Two jewelers, AJD Platinum and Vivid Blue, identified themselves in court filings as Saks vendors working on a consignment basis. AJD said it has $8.3 million in inventory at Saks.

In their joint submission last week, the jewelers said they "do not consent to the use or sale of any of their consigned goods."