NEW YORK — Saks Inc. was slapped with a default notice on $230 million worth of debt, but said it has the money to repay it if necessary.
The retailer said in a statement Wednesday it was notified of being in default of the convertible senior notes, due March 15, 2024, from a hedge fund that owns more than 25 percent of the debt. Saks was given notice because the company has delayed the filing of its annual report.
Saks has until Aug. 13, or 60 days from the date the default notice was given, to resolve the issue. If Saks can’t clear the notice or get a waiver, then the notice becomes an “event of default.”
Saks said a default on this debt could lead holders of other senior debt notes to accelerate the maturity of their notes. If all the senior notes are accelerated, Saks’ total liability for immediate repayment, including the convertible notes subject to the notice of default, would be $1.22 billion. Saks said it would be able to repay the debt holders if any of the maturities are accelerated.
“We are disappointed to have received the notice of default, given the overall strength of our financial position and our public statements on the expected filing of our 2004 10K on or before Sept. 1, 2005. We believe that we have adequate resources available … to fully retire all amounts that may be accelerated and to fund our operations,” said Douglas E. Coltharp, chief financial officer of Saks Inc., in a statement.
The default notice was sent because Saks breached certain covenants of the debt agreement when it failed to file its annual report with the Securities and Exchange Commission, as well as to the trustee of the convertible notes. It also was given the notice for “nondelivery” of a compliance certificate to the trustee within 120 days of the end of the fiscal year.
The retailer said it has $324 million in cash on hand as well as the expectation of about $620 million in proceeds from the pending sale of the Proffitt’s and McRae’s stores to Belk Inc. If additional funds are required, Saks said it intends to rely on borrowings under its amended and restated credit agreement, which has about $650 million of unused capacity.
The retailer’s other lenders already have waived any event of default that might arise from its delay in filing the requisite regulatory filings, Saks said.
As reported, Saks also is considering its options with respect to its Northern division of department store nameplates as well as its Club Libby Lu specialty store business.
A Saks spokeswoman said, “It’s unfortunate that the act of a single hedge fund is seeking to take advantage of the current situation, but for us, it’s business as usual.”
Meanwhile, Fitch Ratings said it would not take any immediate rating actions on Saks’ senior notes in connection with the default notice because Saks has “sufficient liquidity to repay its $1.2 billion of senior notes in the event all of its debt is accelerated in 60 days.”
The company is in the midst of examining improper markdown allowances in various prior periods. Due to the internal reviews, Saks delayed its annual report and 10K, and will adjust financial statements going back to 1999. As reported, the company is also the subject of separate investigations by the Securities and Exchange Commission and the U.S. Attorney’s Office in Manhattan.
Saks’ shares fell 2.2 percent to $18.09 in trading on Wednesday.