Saks Global received judicial authorization on Friday to send its Chapter 11 restructuring plan to creditors for a vote, moving a proposed recapitalization one formal step closer to implementation. U.S. Bankruptcy Judge Alfredo Perez approved the company’s disclosure statement and permitted the company to solicit creditor ballots at a hearing held in Houston, Texas.
Under the restructuring proposal, Saks Global’s existing equity would be canceled and governance would shift to the company’s senior lenders. Those lenders have committed to provide $1 billion in new financing through the bankruptcy process and have pledged an additional $500 million following the company’s planned emergence from Chapter 11.
The bankruptcy plan is structured to eliminate most of Saks Global’s prepetition indebtedness and to reduce the company to a smaller operating footprint. The company has already used the protections of Chapter 11 to address strained relationships with key luxury vendors, to wind down its off-price retail banner, and to shutter more than half of its Saks Fifth Avenue locations.
Creditors must cast their votes on the plan by June 1. To win the support of junior creditors, Saks Global has agreed to establish a litigation trust funded initially with $20 million. Court filings indicate the litigation trust is intended to pursue potential claims in the hope of generating recoveries for unsecured and subordinated creditors. The junior creditor group, which is collectively owed about $1.5 billion, would in all likelihood recover nothing without the litigation trust, according to the filings.
Saks Global entered bankruptcy on January 13 with $3.4 billion in debt. Court documents attribute the cash shortfalls that precipitated the filing to complications stemming from its merger with Neiman Marcus, which hindered the company’s ability to reliably restock store inventory and impaired relationships with important suppliers including Chanel, LVMH and Kering.
The court’s approval to move forward with a creditor vote formalizes the timetable for a potential reorganization that relies on new secured financing and the creation of a litigation vehicle to address creditor recoveries. The outcome now turns on creditor ballots and the steps the debtor and lender groups must complete under the Chapter 11 roadmap.