Saks Fifth Avenue's Debt Bomb: Why Shorting Its Bonds Is a No-Brainer

The luxury retail sector is built on illusion—sleek stores, curated brands, and the promise of exclusivity. But behind Saks Fifth Avenue’s gilded façade lies a financial house of cards. With $4 billion in debt, a critical $120 million interest payment due in June, and EBITDA projections collapsing to just $50 million (a fraction of the $707 million promised at its Neiman Marcus acquisition), Saks Global is hurtling toward a liquidity cliff. For investors, the writing is on the wall: short its bonds now before the collapse.

The Numbers Don’t Add Up: Debt vs. Reality

Saks’ $2.7 billion acquisition of Neiman Marcus in late 2024 was a gamble financed by $2.2 billion in junk bonds trading at 11%—a rate designed for companies with “vulnerable” credit profiles, not those aspiring to be retail giants. Yet here we are: its bonds now trade at 59 cents on the dollar, down from near-par levels in early 2025. The math is brutal.

• Debt Obligations: Saks faces a $120 million interest payment due June 30. Its “liquidity buffer” of $400 million sounds substantial, but $300 million of this is tied to a risky first-in-last-out (FILO) loan—a stopgap that adds more interest costs while doing nothing to address its core cash flow crisis.
• EBITDA Collapse: S&P’s analysis reveals a projected $50 million EBITDA in 2025—93% below the $707 million run-rate cited during the Neiman Marcus deal. With tariffs, inventory shortages, and a vendor revolt (2,660 brands now reduced to 2,160), Saks’ cash flow is a sieve.

Creditors Are Already at the Door

The bondholders—now a majority group—aren’t waiting for the company to “transform.” They’re pushing for restructuring terms that could force equity conversions or debt write-downs. Why? Because Saks’ “synergies” (labor cuts, vendor payments delays) are backfiring:
1. Vendor Pay Disputes: Delays in paying suppliers have led to inventory shortages, slashing the borrowing base of its $1.8 billion asset-backed loan to just $408 million—a third less than needed.
2. S&P’s Warning: Its “CCC+” rating—already the second-lowest rung before default—could drop further if Saks misses its June payment. S&P has put the rating on CreditWatch, signaling a potential downgrade within months.

Shorting the Bonds: A Risky Bet, But One with Certainty

This is not a call to speculate on volatility. It’s a call to bet on inevitability. Saks’ path is clear:
- Bankruptcy or Debt-for-Equity Swap: With EBITDA at $50 million and interest costs swallowing 240% of that figure, bankruptcy is the likeliest outcome. Alternatively, bondholders may force Saks to convert debt into equity, rendering bonds nearly worthless.
- Liquidity Drain: Even if Saks meets its June payment, its free cash flow deficit—projected to persist through 2026—means it’s borrowing to stay alive. The $3.5 billion real estate portfolio it’s trying to sell? Already discounted by the market—no quick fix there.

Act Now—Before the Fall

The window to short Saks’ bonds is narrowing. Its May trading at 59 cents reflects panic, but default risk isn’t priced in yet. If S&P downgrades further or the June payment falters, prices could crash to the 30s.

For investors:
- Short the bonds (ticker: SAGLEN 11 12/15/29 REGS) at current levels.
- Hedge with puts on any remaining equity—though its stock is already a sideshow to the bond carnage.

Saks’ story is a case study in overleveraged ambition. The debt bomb is ticking. Short now—before the explosion.

This article is for informational purposes only and should not be construed as financial advice. Always consult a licensed professional before making investment decisions.