Saks Global gets final court approval for $1 billion bankruptcy loan after addressing vendor complaints

By Dietrich Knauth

Feb 20 (Reuters) - A U.S. bankruptcy judge on Friday gave final approval to Saks Global's bankruptcy financing, which provides $1 billion in new funding to the company, after Saks reached deals with luxury brand vendors that had raised concerns about getting paid for goods shipped to the retailer before it went bankrupt.

Saks had received initial pushback on its bankruptcy financing from brands such as Chanel, Dolce & Gabbana, LVMH, as well as landlords and Amazon.com AMZN.O, which had partnered with Saks on an online sales platform. But the company resolved those concerns before a Friday court hearing in Houston at which U.S. Bankruptcy Judge Alfredo Perez approved the financing.

Saks, which values the overall bankruptcy financing package at $1.75 billion, has said it needs the money to repair vendor relationships and buy time to renegotiate its debt. The bankruptcy loan also includes refinancing of pre-existing debts and an expanded borrowing limit on the company's asset-based lending facility. Saks previously received court approval to draw on the initial portion of the loan.

CASH SHORTFALLS

Saks filed for bankruptcy on January 13 with $3.4 billion in debt, after its ill-fated merger with Neiman Marcus caused cash shortfalls that prevented Saks from reliably replenishing ⁠inventory at its stores.

Many of the vendors had raised concerns that the bankruptcy loan could allow Saks’ lenders to claim collateral rights to millions of dollars in luxury handbags, clothing and jewelry that the luxury brands had sent to Saks on consignment.

The vendors' contracts with the retailer allowed them to continue to own the inventory until it is sold. This arrangement is common in luxury retail, where labels operate mini boutiques inside department stores and supply goods on concession or consignment.

Saks and its lenders reached agreements before the hearing confirming that the inventory provided on consignment was not Saks’ property. The company also resolved objections by some landlords, who were concerned about rent payments owed for January, the month that Saks filed for bankruptcy.

Ben Butterfield, an attorney representing a court-appointed committee of Saks' junior creditors, said in court that nearly $600 million of the new financing will be used to make catch-up payments to vendors who provided goods to Saks before it went bankrupt. About $330 million of those payments will go out in the next two weeks, Butterfield said.

"It's going a long way to restoring relationships between Saks and its vendors," Butterfield said. "As everyone knows this business doesn't exist without its vendor community."

Saks owes $136 ‌million ‌to Chanel, $60 million to Gucci maker Kering and $26 million to Louis Vuitton parent LVMH, according to its court filings.

The bankruptcy financing includes other financial terms, including refinancing some of Saks' pre-existing debt and commitments from the lenders to provide additional financial support after Saks emerges from bankruptcy.

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