Welcome to Dry Powder. I’m Bill Cohan. When Saks Fifth Avenue scooped up the parent company of Neiman Marcus and Bergdorf Goodman last December for $2.7 billion, the newly formed and debt-saddled Saks Global seemed to glide past even cursory scrutiny from Lina Khan’s Federal Trade Commission. Maybe it all got lost in the frothy pre-Trump 2.0 vortex. Certainly, Saks Global’s $2.2 billion bond offering was evidence of an amour fou between investors and the incoming president’s promises of economic prosperity. But even under the best light, the deal looked tarnished. Then Trump’s tariff shenanigans complicated matters. Now, with the first $120 million payment on that debt coming due next month, the company is bringing in restructuring partners like Kirkland & Ellis and PJT Partners. The plot is thickening, and that’s the story for tonight… But first…

My dinner with Dara: Out of the blue the other day, I got invited to a “small, off-the-record” dinner with Dara Khosrowshahi, the C.E.O. of Uber, at Chez Margaux, one of the many private clubs that seem to be sprouting all over Manhattan. Chez Margaux is on the far west side, in the Meatpacking District. So, of course, I wanted to go, both to see Chez Margaux and to meet Dara. Some three hours after I’d confirmed that I would attend, however, the dinner got canceled.Now we know why. Dara was off to a special event of his own in Saudi Arabia—a lunch in Donald Trump’s honor with the Saudi leadership, and a number of other bold-faced American tech and business leaders, including Elon Musk, Steve Schwarzman, Larry Fink, Citigroup’s Jane Fraser, Ray Dalio, our own Dina Powell (natch), Boeing’s Kelly Ortberg, Amazon’s Andy Jassy, Palantir’s Alex Karp, Sam Altman (now weighing a major United Arab Emirates data center deal), former Uber C.E.O. Travis Kalanick, and a16z’s Ben Horowitz, one of the Smartest Guys in the Room. There was also Google’s Ruth Porat and Nvidia’s Jensen Huang, whose company looks to be getting approval to export more than a million of its most advanced chips to the U.A.E. A long private jet flight, I’m sure, but a lunch for the ages. Anyway, here’s hoping dinner with Dara gets rescheduled.

An Elliott update: I have a quick follow-up to my recent piece about the only quasi-interesting proxy fight going on this season—the beef between Elliott Management, the big hedge fund founded by Paul Singer, and Phillips 66, the $50 billion oil and gas behemoth. We’ve now heard from the two big proxy advisory firms, Institutional Shareholder Services and Glass Lewis, and both have come down in support of Elliott’s fight to add four new directors of its choosing to the Phillips 66 board. ISS supported the full Elliott director slate, while Glass Lewis endorsed three of the four candidates. Those endorsements—especially the 27-pager from ISS—got the Phillips stock moving up more than 4 percent on Tuesday. Elliott’s 20 million shares are now worth $2.47 billion, nearly even with the price the firm paid for them.In its comprehensive analysis, ISS didn’t mince words when it came to Phillips 66. “Operating performance has been disappointing, particularly when considered alongside management’s messaging,” ISS wrote. “Big picture,” the advisory firm continued, Phillips 66 “has not been able to sustain improvements or contend with market volatility effectively.” The group accused Phillips 66 of “providing selective and ambiguous disclosure that obfuscates results, makes it difficult to assess decisions, and creates impediments to evaluating performance.” ISS was also incredulous that management had decided not to bring two of its four board nominees to the meeting with the proxy solicitation firm, where it was evaluating the board candidates.This one is looking increasingly like a win for Elliott, especially if the big Phillips institutional shareholders, such as Vanguard, BlackRock, State Street, Wells Fargo, and Harris Associates, follow the recommendations of the proxy advisors. In any event, we should know the answer around May 21, the day of Phillips 66’s virtual-only shareholder meeting.

And now, on to the main event…

Life Saks

Pretty much everything that could go wrong at Saks Global has gone wrong. Now, two firms best known for advising on restructurings have been engaged amid growing doubts about the company’s future.

William D. Cohan

As I’ve been documenting for a few weeks now, Saks Global continues to ride a seemingly endless cycle of market volatility and vicissitude—including some bumps of its own creation. Saks is the brainchild of Richard Baker, a Greenwich real estate developer who was the architect of the $2.7 billion deal that closed in December, wherein Saks bought Neiman Marcus Group, including Bergdorf Goodman, from the hedge funds that owned the company after it emerged from bankruptcy. To pay for the acquisition and refinance existing debt, Saks Global ended up with some $4 billion in debt, including a publicly traded $2.2 billion five-year bond, underwritten by Jefferies; a $1.8 billion asset-based loan, underwritten by Bank of America; and an existing $1.25 billion commercial mortgage-backed security, backed by the Saks flagship store on Fifth Avenue. For whatever reasons, the Saks-Neiman deal sailed over various regulatory and financial hurdles. Perhaps it was the brief optimism on Wall Street in the weeks following Trump’s victory? Maybe it was the reality that the Federal Trade Commission typically doesn’t bother with the luxury market? Anyway, the Biden regulators, on their last legs, approved the deal with nary a peep. The deal didn’t even merit a second request from the F.T.C. or the Justice Department.

A MESSAGE FROM MCKINSEY & COMPANY

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The bond deal was also a blowout, albeit one greased by a tasty 11 percent coupon. The idea was to raise $2 billion in the bond offering, but demand was so brisk—or the arm-twisting so intense—that Jefferies upped the size of the deal by 10 percent, to $2.2 billion. There was also the promise, as revealed in the confidential bond prospectus, that Saks Global hoped to generate $707 million of some form of convoluted EBITDA in 2025, presumably to more than cover the interest that had to be paid on the $4 billion-plus debt. Investors were persuaded, apparently. No doubt there were plenty of high-fives to go around in Greenwich and bottles of Romanée-Conti opened at San Pietro, around the corner from Jefferies’ headquarters on Madison Avenue, when the deal closed before Christmas. And in no time, the trouble began.

Bondage

If you’ve been following my recent dispatches, and those of my partner Lauren Sherman, you know that pretty much everything that could go wrong at Saks Global has gone wrong—including, but not limited to, the fateful decision on Valentine’s Day to stretch vendor payables from 30 days to 90 days; the closure of a Neiman store in San Francisco and a distribution center in Tennessee; and the threatened closure of the flagship Neiman store in Dallas (it will probably close soon enough). Luxury retail, including Saks Global, has also been hit especially hard by Trump’s Liberation Day chaos. Saks Global is a private company owned by Baker and a bunch of his blue chip partners, including Amazon, Salesforce, and Authentic Brands Group, plus existing investors, such as my old Lazard friends Steve Langman and Robert Agostinelli at the Rhône Group, and Insight Partners and Abrams Capital. As a private company, Saks Global does not have to file any financial statements with the S.E.C. (Even though the bond trades publicly, it was sold only to institutional investors.) But if you look at how the bonds have been trading, you can see the obvious signs of trouble. It was apparent after the Valentine’s Day massacre, and then after Liberation Day, that investors in the bonds were rapidly losing confidence. The question on Wall Street quickly became whether Saks would be able to make the first $120 million or so interest payment at the end of June. Soon enough, the bonds traded into the range of 70 cents on the dollar, yielding more than 20 percent—a sure sign that financial trouble was brewing, or at least that was the view of bond investors, a group that usually knows what it’s talking about. As one of them told me recently: “Saks was an obvious short. Deal never should have gotten done.” Things have only gotten worse at Saks Global. As I reported a few weeks ago, Saks has been talking to financial and legal advisors in order to begin digging out of the mess that Baker et al. created. At the time, the company denied to me that any such discussions with outside advisors, including PJT Partners—my old friend Paul Taubman’s firm—were underway. On Monday, however, Bloomberg reported that Saks Global had hired Kirkland & Ellis for legal advice and, you guessed it, PJT Partners for financial advice, “to explore ways to raise new financing” alongside the first-in-last-out loan that, as I’ve reported, Saks was looking to carve into its existing asset-based loan from Bank of America. No offense, but I am highly skeptical that the assignment for Kirkland and PJT is to find new financing. There is rarely new financing available for a company that is already as highly leveraged as Saks Global. Needless to say, that $707 million in promised EBITDA is far from materializing, according to my sources, and is shaping up to be closer to $50 million of EBITDA in 2025. (Saks previously declined to comment on that figure.) That’s not nearly enough to cover the interest payments on the more than $4 billion of debt. That’s why there’s so much concern about whether Saks Global will make that first interest payment on the bonds next month. Yes, Saks does have around $400 million of availability under its asset-based loan, as it told bond investors in a call two weeks ago. But I’m not sure an ABL line is supposed to be used to make an interest payment on another unrelated security. But we shall see.

A MESSAGE FROM MCKINSEY & COMPANY

Both Kirkland and PJT are premier restructuring advisors, and are usually hired to fix the balance sheets of troubled companies rather than raise new financing. I think the “explore ways to raise new financing” phrase, as reported by Bloomberg, could be a canard to give cover to what’s really about to happen here: a full-fledged debt restructuring to avoid bankruptcy. That is what the bonds are signaling: They’re trading at 59 cents on the dollar and yielding nearly 28 percent. (A spokesperson at Saks Global declined to comment.)

The Ticking Clock

Since I started reporting about the Saks saga last month, I’ve heard plenty of interesting tidbits about what’s really going on. One Neiman sales manager wrote to me that “it’s absolute chaos” inside the stores, and that corporate management has “stripped back everything that assisted in streamlining our day-to-day.” He added that he was concerned the inevitable outcome would be “another bankruptcy,” and that there did not seem to be “a light at the end of this tunnel.” Another source, who has just started representing some increasingly worried Saks vendors, told me he’s also concerned a bankruptcy is looking inevitable. “When you have a lot of debt and you don’t have enough sales to cover it, there’s really only one way out: bankruptcy,” he said. “And while Baker and the creditors may not want that, the company doesn’t have a choice.” This person wondered if the company was searching for some new source of equity capital from the Middle East or a sovereign wealth fund. But that, he said, would be “like wishing you win the lottery when you don’t make enough money to pay your mortgage and the lease on your Bimmer!” I spoke with John Bringardner, the executive editor of leveraged capital markets at Ion Analytics, who oversees a team of some 200 journalists and analysts covering the distressed debt marketplace for Debtwire and other publications. He agreed that the Saks Global situation is looking precarious. He said that the Saks Global creditors have hired high-priced advisors as well: Paul Weiss—yes, Paul Weiss can still get hired—and my old buddies at Lazard, on the banking advisory side. All of which means that the battle has now been joined for real. We may be getting a wholesale consensual debt restructuring—wherein the distressed debt investing community ends up with a big chunk of the equity of Saks Global in exchange for converting some of their bonds into equity. Or, if the two sides can’t agree and the interest payment is not made in June, there could be an old-fashioned “free fall” bankruptcy. (Although that prospect could still be avoided if cooler heads prevail.) There’s also the remote possibility, I suppose, that Jeff Bezos could take pity on Saks Global—the way Elon Musk took pity on the X creditors and bailed them out by merging X with xAI—and either have Amazon buy Saks Global outright and put it in the stable with Whole Foods, or just inject a bunch more equity into the company to pay down debt and fix the balance sheet. I don’t see that happening, of course. But it remains a slim possibility. In the meantime, like the gang at Debtwire, I’m awaiting the next shoe to drop. “Since January,” Bringardner said, “this has just been falling down pretty precipitously. We haven’t seen this in a while, where a new issuance goes into distress so quickly. Used to happen not infrequently, but it’s definitely been a number of years. So this is kind of shocking to see … It’s hard to see how they make it out of this first year.”

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