Negotiators for Saks, a group of its brand suppliers and the lenders that backed a $1.75 billion debtor-in-possession (DIP) loan are racing to settle a dispute over whether millions of dollars of luxury handbags, apparel and jewelry can be claimed as collateral, people familiar with the discussions said.
In recent weeks suppliers have sought explicit guarantees from the lending group that inventory supplied on concession or consignment - and any cash proceeds tied to that inventory - would not be treated as part of the collateral package for the DIP facility, according to four people with knowledge of the talks.
Those involved in the discussions hoped to finalize agreements before a court filing deadline on Tuesday for objections to the loan, the people said. Two of the sources said negotiations were close to completion, while two others said significant issues remained unresolved. The participants spoke on condition of anonymity because the negotiations are private.
Background and why the loan matters
The retailer, which filed for Chapter 11 protection last month, has said it could not remain in business without the DIP loan. The financing, led by Pentwater Capital Management and Bracebridge Capital, has allowed Saks to continue operating stores and to pay vendors while it pursues a restructuring of billions in debt.
The dispute highlights the power dynamics that can emerge during a restructuring. DIP lenders typically obtain high-priority liens on a debtor's estate and can emerge with significant control or equity in a reorganized company. In Saks' case, however, certain brands hold notable leverage because the retailer's luxury positioning depends on a small set of exclusive labels that draw high-spending customers.
Among the brands cited by sources as important to Saks' merchandising mix are Chanel, LVMH-owned Louis Vuitton, Dolce & Gabbana, Christian Louboutin and Gucci, a unit of Kering.
The core of the disagreement
The contested issue centers on merchandise that suppliers legally retain ownership of until it is sold, even while it remains on Saks' shelves. That arrangement - concession and consignment relationships in which brands operate mini-boutiques inside department stores - is common in the luxury retail sector.
A court order in January that tentatively approved part of the DIP loan included language intended to protect concession and consignment property from being treated as lenders' collateral. Nevertheless, some brands have expressed concern that the structure of the loan could leave room for lenders to assert claims on such property in certain circumstances, two of the people said.
Concessionaires are seeking an explicit judicial determination that their inventory is not part of Saks' estate. If granted, that would preserve vendors' ownership of the merchandise and prevent them from being reduced to unsecured creditors with claims instead of retained owners of the goods.
Size and composition of concession claims
Two of the sources said Chanel is by far the largest concessionaire at Saks, with a roughly $136 million claim that represents well over half of the claims from concession and consignment suppliers. The sources also noted smaller boutique labels, citing Italian clothier Kiton as having concession claims.
Two jewelers, AJD Platinum and Vivid Blue, identified themselves in court filings as vendors operating on a consignment basis. AJD said it has $8.3 million in inventory at Saks. In a joint submission to the court last week, the jewelers stated that they "do not consent to the use or sale of any of their consigned goods."
Positions and statements
Pentwater and Saks declined to comment on the ongoing negotiations, and Bracebridge did not immediately respond to requests for comment, according to the people familiar with the talks.
Suppliers' concerns and the potential for formal objections to the DIP loan had not been publicly reported prior to these discussions, the sources said.
What remains unresolved
While some participants described talks as nearly complete, others cautioned that key sticking points persist. The parties are negotiating precise protections that would reassure brands their consigned or concession merchandise - and related proceeds - will not be swept into the lenders' collateral rights, but the contours of any final agreement remained uncertain as of Thursday, according to the people briefed on the matter.
The outcome will shape not only the immediate protections for luxury suppliers, but also the balance of leverage between a lender group seeking to protect its financing and the brands whose goods underpin Saks' luxury retail proposition.