Saks discloses notice of default for convertibles, plans to repay debt if accelerated

By Jennifer Chiou

New York, June 15 - Saks Inc. reported that it received a notice of default on Tuesday from a holder of its $230 million 2% convertible senior notes due March 15, 2024.

The holder, a hedge fund that owns more than 25% of the notes, stated that Saks breached covenants in the note indenture that require the company to file 10-Ks and other reports with the Securities and Exchange Commission and trustee and deliver a compliance certificate within a 120-day period after Saks' fiscal year ended Jan. 29.

As previously noted, Saks has filed neither a 10-K nor 10-Q with the SEC while stating it plans to file the 2004 10-K around Sept. 1.

Saks now has a 60-day cure period, which ends Aug. 13.

If the convertibles are accelerated, some or all of Saks' $990 million senior notes could also be accelerated.

With a default, holders of at least 25% of convertibles may demand immediate repayment of principal and holders of 50% can rescind the demand.

Saks has waivers under its bank facility of the failure to file the financial reports.

If the maturity of any of the debt is accelerated, the company intends to repay all outstanding principal amounts plus accrued interest with cash on hand, currently $324 million, and the $620 million in proceeds from the pending sale of certain assets to Belk, Inc.

If more funds are necessary, Saks plans to rely on borrowings under its amended and restated credit agreement that has $650 million of unused capacity.

"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 10-K on or before Sept. 1, 2005," Saks chief financial officer, Douglas E. Coltharp, said in a news release.

"We believe that we have adequate resources available in the form of cash on hand, the proceeds from the pending sale of certain assets to Belk, Inc. and the unused portion of our revolving credit facility to fully retire all amounts that may be accelerated and to continue to fund our operations."

Birmingham, Ala.-based Saks operates traditional and luxury departmental stores.

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