A group of secured bondholders of Saks Global is discussing providing the embattled luxury retailer with new financing as part of an aggressive liability management exercise, said three sources familiar with the matter.

The creditors are in position to leapfrog ahead of other bondholders thanks to owning a 51% position in Saks’s USD 2.2bn 11% senior secured notes due 2029 and the bond’s malleable indentures, the sources said. This potentially would let the group remove so-called blockers that prevent a company from moving assets away from creditors and debt capacity restrictions, said one of the sources and a fourth source familiar with the matter.

Any LME, though, will likely be conditioned on the group committing to provide new financing to Saks to prop up the cash-starved department store operator, the first two sources said. The second source said that Saks has limited additional collateral to offer the noteholders, so for the majority noteholder group the primary appeal of a deal comes from improving their position in the capital structure relative to minority noteholders.

Although the terms are yet to be finalized, the group can offer USD 200m-USD 250m of the new financing based on the existing debt document, said the first source. Saks has said it is looking to raise over USD 300m in FILO financing under its ABL revolving credit facility, suggesting the retailer could end up securing over USD 500m in new financing.

As in most LME situations, it remains possible a new investor will step up to provide Saks with financing instead of the noteholders, known as a “deal away”, taking advantage of the company’s unrestricted subsidiaries that hold real estate, the third source cautioned.

Creditors have been scrutinizing the valuation of Saks’ real estate, particularly its flagship store in New York that is encumbered by a USD 1.25bn mortgage. Noteholders only have an equity claim on the property that sits within an unrestricted subsidiary and the property has limited redevelopment options, as reported.

The ad hoc group has engaged Paul Weiss and Lazard as advisors, while Saks has engaged PJT Partners and Kirkland & Ellis, as reported. Lord Abbett, New York Life Insurance affiliate MacKay Shields, Arena Capital and Blackrock are among the major holders of Saks notes, according to public filings.

Saks is under the gun to boost its liquidity not only to make a USD 121m interest payment due at the end of June on the secured notes, but also to place orders with vendors for the holiday season and boost inventory, which in turn will unlock more capacity under the ABL, according to two of the sources.

Saks issued the notes last December to finance the acquisition of rival Neiman Marcus Group in a deal that was intended to unlock liquidity and achieve significant cost savings.

However, the company shocked investors last month when it reported flash fiscal 2024 numbers that showed EBITDA for the combined firm fell 30% YoY and that it only had USD 407m of availability under its USD 1.8bn ABL facility as of 1 February, as reported.

The secured notes have been trading down dramatically in the past few weeks, changing hands at 47.5 on Friday, according to MarketAxess.

Saks and Kirkland declined to comment. Paul Weiss, Lazard and PJT did not respond to a request for comment.