Sachs Global is struggling to arrange bankruptcy financing

Beleaguered retail chain Saks Global is struggling to raise up to $1 billion in financing to keep its business afloat during a potential Chapter 11 bankruptcy filing, CNBC has learned.

The luxury chain is working to secure a “debtor-in-possession” loan, which would allow it to finance operations in the event of a potential bankruptcy filing, people familiar with the matter said. But investors have so far shown little interest in lending Saks money because they doubt the company’s ability to successfully reorganize and pay it back, said the people, who spoke on the condition of anonymity because the discussions are private.

While DIP lenders get repaid before other creditors during bankruptcy proceedings, they don’t always recover their full investments, and some investors worry that could happen if they finance Sachs, the people said.

This 159-year-old department store, now owned by Neiman Marcus and Bergdorf Goodman, is a luxury fashion destination and icon, known for offering top brands like Chanel and Dior alongside upcoming brands like Good American. Across the entire enterprise, Saks Global has more than 70 full-line luxury stores and approximately 100 off-price locations.

Since Sachs missed interest payments to bondholders late last month, only a “limited number” of investors have shown interest in financing the DIP loan, while a number of others have declined to participate, the sources said.

Sachs declined to comment on investor interest in the fundraising efforts.

A wide range of firms invest in companies that could be headed toward bankruptcy, including major banks and private equity. However, one of the sources said the only firms likely to be interested in investing in Saks at this stage are either liquidators who also have investment vehicles or alternative asset managers with experience in distressed retail trading. However, even some of these investors refused to participate in the Sachs DIP loan, the people said.

Liquidation is one of several possible outcomes that Sachs currently faces. However, if you cannot obtain a DIP loan, which will be used to pay basic expenses such as payroll, rent, and inventory, this scenario is more likely. The retailer is already struggling to pay these costs.

Failure to arrange financing would prevent Saks from filing for Chapter 11 bankruptcy, which would give the company an opportunity to reorganize and possibly find a buyer willing to take over its business as a going concern. You could then face Chapter 7 bankruptcy, which is for liquidation.

It could spell the end for one of the most famous department stores in history, whose Fifth Avenue flagship store, considered by some to be its most valuable asset, has become a global destination.

Meanwhile, Saks has also been in talks with liquidators for a number of stores that are in the process of closing, but not the entire chain yet, the sources said.

Saks’ problems have escalated since it acquired longtime rival Neiman Marcus in a $2.7 billion deal in 2024, which was largely financed with debt.

The tie-up between the competitors was expected to create a luxury retail powerhouse that could streamline costs and negotiate with vendors better.

Instead, Saks struggled to pay vendors on time, resulting in inventory gaps and declining sales. The slowdown in the overall luxury market, which has seen growth stagnant in recent years, has exacerbated the problems.