Amazon Fights Saks' Bankruptcy Plan, Wants To Keep Real Estate Away From Alleged Mismanagement
Amazon is fighting to keep bankrupt luxury retailer Saks Global from pushing it further down the debt repayment list, with the e-commerce giant’s lawyers arguing that mismanagement rendered its $475M equity investment worthless.
Amazon’s lawyers objected to Saks’ plan to navigate Chapter 11 bankruptcy, arguing it needs court approval to roll up debt across entities to secure a financing package in a way that combines its separate real estate and operating businesses. Lawyers for the $2.5T corporate giant see the value in Saks' properties, not its retail business.
“That equity investment is now presumptively worthless after Saks continuously failed to meet its budgets, burned through hundreds of millions of dollars in less than a year, and ran up additional hundreds of millions of dollars in unpaid invoices owed to its retail partners,” attorneys for Amazon wrote in a court filing.
The e-commerce giant seeks to block a debtor-in-possession financing package that would allow Saks to put up its flagship Manhattan location as collateral to secure the capital needed to reorganize.
The Fifth Avenue store is covered by a $1.25B CMBS loan that Amazon says isn't facing financial distress. Saks is making rent payments equal to $7.7M per month for the ground lease, which has a $4.7M monthly interest payment, according to Amazon’s filing in the Texas bankruptcy court where Saks filed its case.
The Midtown Manhattan property was valued at $3.6B in March 2024.
Amazon's attorneys said the property was used as an “equity cushion” when the firm provided Saks $475M in preferred equity to fund the 2024 acquisition of competitor Neiman Marcus. The deal also included a commitment from Saks to list its products on Amazon and generate at least $900M in referral revenue over the next eight years.
Amazon argues that its investment is tied to the entity that owns the flagship store, which it says isn't isn't facing financial strain.
“The DIP facility uses the value at the Flagship Entities to prop up the other Saks Debtors (the “Non-Flagship Debtors”), for the benefit of those other entities’ creditors and at the expense of the Flagship Entities’ creditors,” Amazon’s lawyers argued in objecting to the plan, which was ultimately given interim approval by the court.
Amazon’s lawyers calculated that the rollup of the Saks claims would put more than $1B in additional debtors claims ahead of it in court and raise the total claims against Saks Global to $2.9B, including CMBS loans.
The filing and arguments from Amazon signal it plans to fight Saks’ reorganization plan. Without relief, the corporate giant’s attorneys said they may have to “seek more drastic remedies,” including a liquidation of Saks' flagship property.
“Amazon frames this dispute as part of a larger pattern of misconduct, including ignoring corporate separateness, disregarding contractual consent rights, mismanagement leading to insolvency, and using Chapter 11 to reallocate value away from certain creditors,” Daniel Gielchinsky, a bankruptcy attorney and partner at DGIM Law, said in an email.
The interim approval of the DIP financing plan lets Saks pay to keep the lights on, but another hearing on the filings is scheduled for Feb. 13, keeping Amazon’s objections alive.
Saks disclosed between $1B and $10B in both assets and liabilities in its initial Chapter 11 filing on Jan. 14. Its top 30 creditors have $711M in unsecured claims against the company, according to the filing.
Fashion and fragrance firm Chanel Limited has the largest claim, at $136M, followed by Kering, the conglomerate of luxury brands including Gucci and Yves Saint Laurent, which Saks owes $60M. Professional services firm PwC is the biggest nonretailer to have a claim, at $31M, and Saks also owes Facebook parent company Meta Platforms some $12M.
Saks didn’t respond to a request for comment Friday morning. The retailer began exploring bankruptcy last month after it missed a $100M debt service payment.
To execute the $2.7B acquisition of Neiman Marcus, Saks created a new conglomerate called Saks Global that covered all of its brands. The company operates roughly 33 Saks Fifth Avenue locations, 36 Neiman Marcus stores, two Bergdorf Goodmans and around 70 Saks Off 5th discount locations.
Store closures are expected as part of the restructuring, and the brand asked for court approval to reject 26 unexpired leases covering former Lord & Taylor locations and a now-closed Saks store in downtown San Francisco, according to CoStar.
Some of the locations have been redeveloped for new tenants, including the first immersive retail experience from Netflix, while others remain vacant.
Many of the properties are part of malls owned by Simon Property Group and backed by a $428M CMBS package, according to CoStar.
The bankruptcy financing package, which includes $1B in capital initially and another $500M after Saks completes the reorganization, is being led by Pentwater Capital and Bracebridge Capital, which also helped Saks raise $600M through a bond offering in June as it faced another looming debt service payment.
Amazon lawyers said the corporate giant didn’t consent to the additional fundraising plan despite that being a requirement of its 2024 equity infusion. The new corporate bonds earned a CCC junk rating from S&P Global in September and were further downgraded last week into selective default.
“Amazon has grave concerns with significant issues in these cases, particularly with respect to the Debtors’ mismanagement and their attempts to ignore Amazon’s consent right,” Amazon’s attorneys from Latham & Watkins LLP wrote in their closing comments objecting to the financing package.
