Welcome back! I can’t believe it’s year-end. I’m putting the finishing touches on my year-end newsletter, which will be out in a week. Today, we have another distressed business study.

Retail has been very hard to invest in, and Saks Global has been an absolute mess for the bulk of this year. Saks Global owns several luxury stores like Bergdorf Goodman, Neiman Marcus, and Saks Fifth Avenue, and “off-price” stores like Neiman Marcus Last call and Saks Off 5th. The luxury retailer has over 13mm sq. ft. of retail space, and has a proud history, particularly in NYC. But nothing lasts forever. Beyond just the downfall of brick-and-mortar retail, too much leverage, missteps, and supplier worries, rapidly drove Saks into distress, and the OG “MyTheresa” IP story was one of the first notable borrower shenanigans of the cov-lite era.

Bloomberg recently reported that senior debt trades at ~60 while subordinated 1L debt trades around 12 cents on the dollar, as the Company faces a $100mm interest payment at month-end that they may not be able to pay. 2Q revenue was -13% y/y and the retailer is getting squeezed hard by worried suppliers.

Let’s get into it below after a word from our Sponsor.

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Major Wall Street firms are rapidly adopting Endex for analyst tasks, as CEOs like Jamie Dimon warn that AI productivity gains will reshape finance teams and eliminate certain roles over the coming years.

They are also hiring additional bankers and analysts to train their agentic capabilities.

Part 1: Saks Global and the Neiman Marcus Spin-Off

Saks has been an incredibly topical high-yield/distressed story over the past 18 months. There’s so much detail here that we had it break into a two-part story. The 2024, $2.7B acquisition that created Saks Global, uniting Saks Fifth Avenue with Neiman Marcus and Bergdorf Goodman under Hudson’s Bay Company (HBC) came on the heels of Neiman Marcus’s turbulent restructuring and a controversial asset spin-off. In particular, Neiman’s pre-bankruptcy maneuver to divest its European e-commerce jewel, MyTheresa, became a textbook example of liability management that preserved value for sponsors at the expense of creditors. This first article in the two-part series examines Neiman Marcus’s descent into distress, the mechanics and rationale of the MyTheresa spin-off (and how that asset ultimately came to figure in the Saks Global story), and then turns to Saks Global’s own financial position before its mid-2025 liability management exercise. We’ll take a close look at the 11.0% Senior Secured Notes due 2029 indenture that shaped the company’s restructuring options.

This total Part I piece is slightly fewer than 5,000 words. Let’s get into it.

Neiman Marcus’s Distress Leading to the MyTheresa Spin-Off

Neiman Marcus Group (NMG) spent much of the 2010s laden with debt from successive private equity buyouts and struggling with falling earnings. After a 2013 leveraged buyout by Ares Management and Canada Pension Plan Investment Board (CPPIB) for ~$6bn, Neiman’s debt load topped $5bn. By 2018, EBITDA had nearly halved from about $665mm in FY2015 to roughly $400mm in the 12 months ended April 2019. EBITDA margins eroded from 13.1% to 8.5% over that period, as the once iconic luxury retailer struggled with changing consumer trends, intense competition, and the death of brick-and-mortar.

Servicing Neiman’s massive debt became increasingly untenable as earnings fell. Annual interest expense hovered around $285–296mm in FY2016–2017 and climbed further by FY2019, consuming most of the company’s EBITDA. By April 2019, Neiman’s leverage ratio had spiked to 12.4x debt/EBITDA, with interest coverage a thin ~1.2x. In other words, Neiman was barely generating enough EBITDA to cover interest on its ~$5bn debt, let alone invest in operations or growth. The situation was aggravated by looming debt maturities: a $2.94bn term loan was coming due in October 2020, and $137mm in unsecured notes would mature in 2021. Although Neiman executed a debt extension in mid-2019 (pushing the term loan maturity out to 2023 for consenting lenders), it only delayed the inevitable.

The MyTheresa E-Commerce Asset: Amid these headwinds, Neiman Marcus possessed a fast-growing asset that contrasted with its core department store business: Mytheresa, a Munich-based luxury fashion e-commerce platform. Neiman had acquired Mytheresa in 2014 for ~$182mm, seeking to expand online and internationally. By the late 2010s, Mytheresa had become a “crown jewel” – a profitable, high-growth digital retailer with an estimated value of at least $200–300mm (and arguably far more as e-commerce valuations soared). Around 2018, MyTheresa was conservatively valued around $280mm on Neiman’s books; subsequent events would show its true value was in the billions range. For Neiman’s PE sponsors, this asset represented a potential lifeline: monetizing MyTheresa could generate cash or value even as the flagship retail business struggled. But doing so within the confines of Neiman’s capital structure was tricky. The company’s debt agreements restricted asset sales and transfers, especially those benefiting equity holders, through negative covenants. Basket capacity ended up being one of the most important aspects of these credit documents.

The 2018 MyTheresa Spin-Off Mechanics: Neiman Marcus’s management and sponsors ultimately executed an aggressive “drop-down” and distribution transaction to extract MyTheresa from the restricted group of assets available to creditors. The maneuver relied on typical loopholes in leveraged loan and bond covenants. First, Neiman designated the MyTheresa subsidiary as an “unrestricted subsidiary” under its credit documents (a process that began as early as 2014 and was completed by 2017). Unrestricted subs are not bound by the covenants of the debtor’s indentures/loans, and their assets do not secure the debt. Then, in September 2018, Neiman dividended out 100% of the equity of the MyTheresa unrestricted subsidiary up to its parent holding company (Neiman Marcus Group, Inc., which was controlled by Ares and CPPIB and sat above the creditors’ obligor group). Because the holding company parent was not a guarantor or debtor under Neiman’s credit facilities, this spin-off placed MyTheresa entirely outside of Neiman’s creditors’ reach. In essence, ~$280mm+ of valuable e-commerce assets were transferred to the sponsors for no cash. Neiman received no reduction in debt from this transaction. It was effectively a shareholder payout in kind, done at a time when the operating company’s solvency was in doubt.

From a legal standpoint, the spin-off did not technically violate the covenants due to careful navigation of the document baskets, highlighting the generosity of “permitted investment” and unrestricted subsidiary allowances in the credit docs. However, it was immediately controversial. Unsecured noteholders and some lenders decried the move as a fraudulent transfer and attempted to challenge it in court, since it removed a significant asset from the collateral pool for their debt. These efforts gained little traction prior to bankruptcy, though the disaffected creditors certainly kept the issue alive.

Outcome and Value Realization: The MyTheresa spin-off did indeed preserve the value of that asset for Neiman’s equity sponsors – but it could not save Neiman Marcus itself. Neiman’s brick-and-mortar business continued to struggle, and the onset of the COVID-19 pandemic (spring 2020) proved ruinous. The company filed for Chapter 11 bankruptcy in May 2020, carrying ~$5bn in debt, and eliminated about $4bn of that debt through reorganization. One of the largest benefits of in-court bankruptcies for brick-and-mortar retailers is the ability to reject leases, which can be crucial in reducing debt and interest expense. The pre-petition sponsors (Ares/CPPIB) were wiped out of the operating company, and ownership transferred to a group of creditors led by Pacific Investment Management Co (PIMCO), Davidson Kempner, and Sixth Street. Notably, MyTheresa was not part of the bankruptcy estate. Thanks to the 2018 spin-off, it remained with Neiman’s parent (and thus effectively with Ares/CPPIB). This set up an unusual situation: the old sponsors lost Neiman but kept MyTheresa.

The sponsors proceeded to capitalize on MyTheresa’s value. In January 2021, Mytheresa (operating as MYT Netherlands Parent B.V.) conducted an IPO on the NYSE, achieving an initial valuation of about $2.2bn (which rose to $3.0bn on first-day trading). In other words, an asset Neiman had spun off at an estimated ~$280mm value had appreciated to be worth an order of magnitude more in the public markets. While Neiman’s creditors got equity in a struggling department store chain emerging from bankruptcy, the former sponsors reaped the rewards of MyTheresa’s success. This fact was not lost on distressed debt observers. Eventually, in late 2024, MyTheresa agreed to a strategic deal to acquire another luxury e-commerce player (Yoox Net-a-Porter), further highlighting its growth trajectory. All of this value existed entirely outside the Neiman Marcus estate that had gone through bankruptcy.

“The Asset Ended Up with Saks”: How does MyTheresa connect back to Saks Global? Indirectly, through the sale of Neiman Marcus Group to HBC (Saks) in 2024. By 2022–2023, Neiman Marcus (post-bankruptcy) was owned by a consortium of institutional investors (the creditor group mentioned above). In mid-2024, Hudson’s Bay Company – owner of Saks Fifth Avenue – struck a deal to acquire Neiman Marcus Group for ~$2.65–2.7bn enterprise value. This deal, which closed in December 2024, merged two rival luxury retailers under a new umbrella, Saks Global, with HBC as the parent. Crucially, part of the consideration for Neiman Marcus was not paid entirely in cash; instead, the Neiman creditor-owners received a $300mm “seller note” due 2026 from the Saks/HBC side as partial payment. This instrument effectively made the former Neiman owners creditors of Saks Global. The seller note carries PIK (paid-in-kind) interest, and has periodic mandatory payments, maturing in 2026. 

In a sense, one could say that the “asset”,  i.e. the residual value extracted from Neiman, ended up within the Saks Global capital structure in the form of this holdco debt owed to Neiman’s prior stakeholders. Those stakeholders (Davidson Kempner, Sixth Street, and PIMCO) who had once battled over MyTheresa and taken Neiman through bankruptcy now became creditors to Saks Global. While MyTheresa itself remained a separate public company (no, Saks did not literally acquire MyTheresa), the chain of events meant that the value Ares and CPPIB pulled out via MyTheresa ultimately affected Neiman’s value post-bankruptcy and arguably triggered its sale. The proceeds of that sale (including the $300mm note) are now obligations of Saks Global. Thus, through the HBC-Neiman transaction, Saks Global “owns” Neiman Marcus (minus MyTheresa),  and owes significant debt to Neiman’s former owners, some of whom were involved in the MyTheresa saga.

Saks Global inherited not only Neiman’s brands and operations, but also a complex financial structure including new debt that traces back to Neiman’s prior owners. With this background in mind, we turn to Saks Global’s own financial condition leading up to its 2025 liability management exercise (LME).

Saks Global’s Pre-LME Financial Position: EBITDA, Cash Flow, and Leverage

Formation of Saks Global: Saks Global was formed in late 2024 specifically to facilitate HBC’s acquisition of Neiman Marcus Group. The transaction combined Saks Fifth Avenue (the luxury department store and its e-commerce arm), Saks off 5th (the off-price chain), and the acquired Neiman Marcus and Bergdorf Goodman businesses into one entity. The deal closed on December 23, 2024, with Neiman Marcus Group formally “spun off” into Saks Global and Neiman Marcus Group LLC ceasing to exist as a separate Holdco. Saks Global became the U.S. holding company for all these banners. (HBC kept its Canadian Saks/Hudson’s Bay operations separate, and apportioned real estate assets accordingly.)

The acquisition was financed with a combination of new equity from investors (including strategic players like Amazon, Authentic Brands Group, Salesforce, G-III Apparel and others) and a substantial amount of new debt. Notably, Saks Global issued $2.2bn of Senior Secured Notes due 2029 carrying an 11.00% coupon as the primary acquisition debt. These 11% Secured Notes 2029 (hereafter, “2029 Notes”) were the fulcrum of Saks Global’s capital structure and would soon become the focus of its 2025 LME. Additionally, Saks Global entered into a large Asset-Based Lending (ABL) revolving credit facility (reported size $1.8bn) secured by inventory, receivables, and other working capital, to provide liquidity for operations.

Side Note - ABL RCs are nuanced in distressed brick-and-mortar situations, as they can trigger a spiral as distress shrinks the borrowing base, leading to a “death spiral.” They can also be used to facilitate distressed M&A transactions such as catalyst brands joining Forever 21s assets to their ABL to increase the borrowing base and using the available drawing capacity to fund GOB operations. For my information on this read part 1 and part 2 of the HYH Forever 21 case study articles. 

At the time of the merger, Saks Global’s pf debt was on the order of $4.7bn. This figure can be reconciled roughly as: $2.2bn of 2029 Notes, up to $1.8bn of ABL capacity (not fully drawn at close, but drawing increased subsequently), the $300mm holdco seller note due 2026 from the Neiman deal, and possibly certain other obligations (for example, there is indication of a mortgage financing on Saks’ flagship NYC store property, around $1.25bn and small legacy facilities like a Saks Off 5th term loan and Canadian ABL, though these were relatively minor).

The Company initially had a 5-year plan to achieve $600mm in cost savings, with $285mm supposed to be achieved in year one. While there were some straight forward labor related synergies, and some supposed supply chain synergies, weak liquidity plus a tough consumer and trade environment made execution easier said than done. Many took this aggressive savings guide with a grain of salt and questions about how much required spending there would be, given that the consolidation of several back-office systems require more spending and associated cash costs to centralize things. 

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