Saks puts off bonds default with offer

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Saks, the luxury retailer, has persuaded bondholders to postpone a potential default initially triggered when its annual report was not completed by the original April 14 deadline.

The retailer, under federal investigation over possible vendor accounting irregularities, last month received a default notice from a hedge fund holding its bonds which gave it until August 13 to file the report, or its debt maturity could be accelerated under the bonds’ conditions.

Saks responded by offering to buy back more than half its $1.22bn in publicly traded debt and to offer a payment to other bondholders to waive their right to force a default and agree to an October 31 filing deadline.

The group tendered for $658m in debt and offered the special fee to owners of a further $562m in notes. Yesterday, Saks said most bondholders had accepted the consent payments to allow it the the necessary leeway.

It also extended the deadline for the buyback and consent payment to midnight on July 18.

Saks bought back the notes at par value, including a $20 consent payment. Those holding bonds eligible for just the special payment received $1 for every $1,000 of principal value.

Yesterday, trading in Saks’ outstanding issues was subdued. The 9.875 per cent coupon note due 2011 traded with a spread of 391 basis points over Treasuries.

Shares in the group rose 2.2 per cent to $19.47 in New York by midday yesterday.

Consent payments were accepted by 59 per cent of the holders of 2 per cent convertible senior notes due 2024, as well as 97 per cent of the holders of 9.875 per cent notes due 2011 and 87 per cent of holders of 8.25 per cent notes due 2008.

In the buy back, holders tendered 57 per cent of its 7.5 per cent notes due 2010, 93 per cent of 7 per cent notes due 2013 and 99 per cent of 7⅜ per cent notes due 2019.

Citigroup, Goldman Sachs, Banc of America Securities and Wachovia Securities acted as dealer managers on the deals.

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