Loading summary
Transcript81 lines
- [00:00]
Lauren Sherman
Calling all sourdough tamers, souffle whisperers and jammy egg Savants. Whether you're a professional chef or just cooking something up delicious on a weeknight, there's one brand that can uplevel your kitchen style and functionality.
- [00:14]
William Cohen
Hedley and Bennett.
- [00:16]
Lauren Sherman
Hedley and Bennett makes premium kitchen gear that combines style, durability and function. Everything from aprons to super sharp Japanese steel knives. They've sold over a million aprons. You've probably seen them on some of the best chefs in the world, in your favorite restaura, well as on TV in your favorite cooking show competitions. Every product is designed by chefs for chefs, using the highest quality materials. Plus they come with a lifetime guarantee so you know you're investing in quality that lasts. And if you're looking for a gift, their new collaborations with the NFL, Star Wars, Disney, and dozens of other iconic brands are perfect for every cook. Ready to upgrade your kitchen? Head over to hedleyinbended.com and use podcast 15 at checkout for 15% off your order. That's podcast 15 for 15% off. Elevate your cooking experience with Hedley and Bennett today.
- [01:09]
William Cohen
Are you tired of showing up to dinner parties with the same old uninspired bottle of wine? There has to be a better way to find unique wines that people will actually remember. That's why Psalmsation is a total game changer. Their expert team finds incredible wines from top independent producers, bottles you won't find at your local wine shop. These wines aren't mass produced. They're handcrafted with care, using pure ingredients and meticulous winemaking. And the best part? Sumpsation's team of sommeliers curates every selection so you know you're getting wines that are truly special. Whether you want a single bottle, a full wine club membership, or even a guided tasting experience, Sumpsation makes it all easy and enjoyable. Explore now@somstation.com FashionPeople Foreign welcome to Fashion People. I'm Lauren Sherman, writer of Puck's Fashion and Beauty Memo Line Sheet. And today with me on the show is William Cohen, author of Puck's Must Read Email Dry Powder, where he covers what's happening on and off Wall Street. Today. We're going deep on the future of Saks Global. Before we get going, I wanted to remind you that if you like this podcast, you'll definitely love Puck, where I send an email called Line Sheet. If you're a fashion person, you get that reference. It's an original look at what's really going on inside the fashion and Beauty Industries Line sheet is scoopy, analytical and above all, fun. Along with me, a subscription to Puck gains you access to an unmatched roster of experts reporting on powerful people and companies in entertainment, media, sports, politics, finance, the art world and much more. If you're interested listeners of Fashion People get a discount. Just go to Puck News Fashion People to join Puck or start a free trial Happy Friday everyone. Hope you had a great week. I flew to New York on Monday night and flew back to Los Angeles on Thursday morning. It was one of those incredibly quick trips where I managed to get a tremendous amount of work done. I had two separate lunches with two separate CEOs, a quick two 20 minute coffee with one of my favorite CMOs. I went to San Vicente Bungalows and had dinner with the one and only Bonnie Morrison and two of my best friends, Britt Abutaleb and Leah Chernikov, who you might know from her work at Harper's Bazaar. Or you might know her from the Fashion People pod. She comes on quite often. Brit, who was the Editor in Chief at Racked before Vox Media murdered it. I can't help myself. I'm sorry. It wasn't her fault, that's for sure. She is no longer in journalism, but maybe she should come on and give me some takes one Monday. Brit, you're definitely invited. I also did a bunch of reporting when I was out there and it all culminated with a dinner for Trinny Woodall and her beauty brand Trinny London on Wednesday night. Rachel Strugatz and I co hosted alongside Trinny just after Rachel had this huge scoop about ELF acquiring Road for a billion dollars. So on Friday's Line sheet, Rachel has a bunch more of what happened behind the scenes and also I asked her to kind of look into what happened. What does this mean for Glossier? So Glossier walked so that Road could run and Glossier needs to sell also. My guess is that this even makes their chances worse of having a meaningful exit. But it's really interesting development. I'm fascinated by elf. It feels like it's the Estee Lauder, Gen Z and Rachel's pieces. You have to read it. Sarah Shapiro is also back with the latest news and notes in shopping and retail. Lots of interesting stuff going on. She has a couple little scoops in there and she also reported in Thursday's Line sheet on this event that Laura Piana hosted in San Francisco this week. Both outgoing CEO Damian Bertrand and incoming CEO Frederick Arnault were there and she did a great job at kind of pulling out why it was important for that company in particular, which is, as we all know, performing quite well within the LVMH portfolio. Plus I had a little bit of new reporting on the payment situation at Saks, which leads into this conversation with Bill, who's been covering the Saks debt situation closer than anyone else. I asked him the questions I want answered. And actually long after we recorded in, minutes after I sent my newsletter out, Saks announced that they had raised another. What did they say? They secured $350 million of financing commitments from this company called SRL Credit Solutions, consisting of a 300 million in first and last out philo facility. It means according to Mark Metric, our friend who is the CEO of Sex Global, he says it means they have approximately $700 million in liquidity now available on a pro forma basis. In Friday's email I explain what that means and I talked to Bill a bit and basically he was like, that sounds like very expensive money, so we'll see. But that was if you want to know what Bill thinks about the new money, he said it sounds like very expensive money. And also, just so you all know, Michael Gross, who runs this financing company, used to work at Apollo, was one of the first partners there. And this one, Bill is an expert on Apollo. So you should definitely check out Dry Powder if you haven't already. And let's get going with my conversation with Bill. Bill Cohen, welcome to Fashion People.
- [07:18]
Bill Cohen
Lauren, this is a real privilege. Thank you for having me.
- [07:21]
William Cohen
The privilege is, is all mine. Is that the right thing to say or the honor is all mine?
- [07:26]
Bill Cohen
Yeah, that's the great way. Great retort.
- [07:28]
William Cohen
So what'd you have for breakfast? Is the first question on Fridays, even though we're gonna get serious very fast.
- [07:34]
Bill Cohen
I'm not a big breakfast person. I have my tea. I like a big mug of tea. It's like a time released buzz. It sort of comes, you know, just takes you through the whole morning. And you can be very efficient work wise.
- [07:46]
William Cohen
So matcha or green or Matcha is.
- [07:51]
Bill Cohen
Too LA for me. I'm very much like a caffeinated black tea guy. You know, I was just in Paris, as you know, and went to Mariach Flair and got a bunch of new teas. So yeah, fabulous. Good.
- [08:06]
William Cohen
On the tea front, the only place.
- [08:08]
Bill Cohen
To buy tea, it's one of the only places. It's a really incredible experience going in there. I love it. You really feel like you're stepping back into time. It's great.
- [08:20]
William Cohen
Did you go to Le Balmarche when you Were there?
- [08:24]
Bill Cohen
Yes.
- [08:26]
William Cohen
What did you think?
- [08:26]
Bill Cohen
Just. Well, it's, I mean I went to the episserie part which of course I'm not. I'm much less interested in the, you know, you know me much less interested in the fashion part of it and much more interested in the, you know, gourmet food part of it. I love that place. What we like to do is, you know, go in there, get some great, you know, things to eat and then head out to the park to, you know, hang out, eat lunch, eat dinner, drink a bottle of wine, that kind of thing.
- [08:59]
William Cohen
It's truly the best.
- [09:01]
Bill Cohen
Yes. And we also went one afternoon because, you know, we needed a destination. We went to Samaritan, which, you know, it's also owned by your friends at lvmh.
- [09:13]
William Cohen
It's the right bank.
- [09:15]
Bill Cohen
It's the right bank right on the river they Bridge.
- [09:19]
William Cohen
Took 15 years to re. Renovate it, refurbish it and relaunched it in I think sometime after 2020. It's not been easy for them. What did you think of it?
- [09:32]
Bill Cohen
I mean it was a jewel box, not quite like Tiffany on 57th and 5th jewel box that is truly over the top. $500 million renovation over the top. This is a little more modest, but it's, you know, it's really, it was great actually. It's beautiful building and we had a nice, you know, tea service up in the late afternoon up there. Yeah, I really recommend that. But you know, as I think I may have mentioned, the numero uno for anybody going to Paris now and I'm going to wreck it because, you know, then I'll never be able to get in myself. But Le Bon Georges restaurant up by the Sacre Coeur is sublime. Outdoor, ish, you know, beautiful food is extraordinary. Great service, unbelievable morels. $60 morels in an unbelievable sauce. I mean that's it. Just like bring the Bing. Yeah, they bring the big morels to you in the basket so you can see them and then they cook them up and incredible, you know, heart attack inducing cream sauce and just sublime. Sublime.
- [10:52]
William Cohen
Maybe Alex Bigler and I will book a dinner there when we go in June for three days.
- [10:59]
Bill Cohen
I'm going to insist that you do that.
- [11:01]
William Cohen
Okay, so back to department stores.
- [11:04]
Bill Cohen
Just tell them that I sent you.
- [11:05]
William Cohen
I will. And, and hopefully they'll, they'll have morels. Seasonal.
- [11:11]
Bill Cohen
They probably seasonal. But you might be able to squeeze it a little bit longer.
- [11:16]
William Cohen
Whatever. I'm sure it'll be a fabulous meal. Meal. So back to, back to these department stores. The interesting Thing about La Maritime and Le Bon Marche are they are owned by lvmh. They're single stores. And, and they actually just merged their operations. Essentially La Samaritan was part of their duty free shops business and they are trying to sell that. So they, and the launch of it was a little bit challenged because did you know, Bill, that operating a department store is hard even if you're lvmh, even if you're Le Bain Marche, the greatest department store in the world. It's, it's a quarterly to quarterly. Very difficult business. And you have been writing quite a lot about Saks Global, the owners of Saks Fifth Avenue, Neiman Marcus and also Bergdorf Goodman. What. And you and I have sort of been following back and forth. But what did you, I remember talking to you back in December, or I want to say because you noticed something about their debt all the way back then that you flagged with me.
- [12:35]
Bill Cohen
Look, I mean, boy, you look back, there's so many interesting things about that merger. I mean, as you've pointed out, I mean, why was it allowed to go through without regulatory, any regulatory hoops? I mean, it didn't even get a second request from either the Justice Department or the ftc. I mean, you're talking about a merger of two of the big remaining department store luxury department store chains in this country, chains such as they are. Right. And maybe nobody cares because it's luxury, but that was sort of real head scratchers, especially in the waning days of the Biden administration, which was so difficult or perceived to be so difficult for so many mergers. That was sort of number one. Number two was this, you know, the bond offering that you alluded to, which, you know, there was a period of euphoria in the markets post Donald Trump's election reelection and before his re inauguration where, you know, people on Wall street not only did they bulk up with hiring more M and A people, they really thought the deal business was going to take off under Trump and the regulators were going to, you know, take off their, their spectacles and just let everything fly. So I think there was just this sense that oh my God, it's going to be so great and this merger is going to be so fantastic. And so we'll just sell, you know, do this $2 billion high yield, senior secured effectively junk bond offering. Jefferies underwrote it and you know, either they shoved it down the throats of their institutional investors or institutional investor demand was so strong, as they say, that they upped the size of it from 2 billion to 2.2 billion. Of course, it carried a whopping coupon of 11%, which of course really got everybody's attention. And so the thing got done, 2.2 billion, 11%, which really sort of struck me as wild at the time. And pretty much right out of the gate, the thing traded like, if I may use that word, and after your credible reporting about the Valentine's Day massacre, where they stretched payables, they were paying vendors 30 days, then they stretched it to 90 days. And that to me, having done many retail bankruptcies in my career as a banker, that just immediately was a huge red flag. And the combination of the huge debt deal with the stretching payables, that's kind of a combination. All you need to know. And it's been a financial quasi disaster since then. And the big question here as we're getting ready to start June, is will they make that first interest payment on those bonds at the end of June?
- [16:00]
William Cohen
Okay, so walking back a little bit for the less financially literate listeners of this podcast, can you just explain what the bond issue thing from December is in like Moneyball terms?
- [16:21]
Bill Cohen
Yeah, so let's pretend somebody's taking a bath and turning to the camera. You know, basically they had to pay for the merger. The merger to buy Neiman Marcus Group, which was Neiman and Bergdorf, was $2.7 billion. And so you do that with a combination of debt and equity. And they had a two point, you know, the $2.2 billion debt deal paid for a lot of it. They also had a $1.8 billion asset based lending line, which is, you know, secured by the inventory and the receivables. And then of course there was a bunch of new equity from the likes of, you know, serious equity player. I mean, your buddy Richard Baker, you know, really pulled this one off. You know, got Amazon and Salesforce to come in as equity partners on this. So. And you know, you're beginning to see some of the sacks show up on Amazon now. So, I mean, you know, in some ways it looked like a deal, you know, made in heaven. It was, you know, financed with a fair amount of equity from some serious equity investors, obviously, and this debt deal, so they basically used this cash to pay the old Nieman shareholders, who of course were hedge funds who had owned Neiman when it filed for bankruptcy during the pandemic. So, you know, this combination, you know, probably should never have happened because it was sort of born out of the ashes of bankruptcy or near bankruptcy. But, you know, you'd been writing about it and the potential for it happening for a long time. So you were absolutely right that it was going to happen. And the question is just should it have happened? Does it even make any sense? And will there. What will the fallout from it be?
- [18:27]
William Cohen
Yeah, the circumstances that Richard Bakers wanted this to happen or. Or not. Richard Baker, who owns or is the chairman. I, I own is not the right word of Sax.
- [18:38]
Bill Cohen
One of the.
- [18:39]
William Cohen
And he. I think he acquired Lord and Taylor in 2006 and then Sachs in 2013 and or Hudson's Bay in 06, Lord and Taylor in 09 and Sachs in 2013 or something to that effect. And. But they've been. The merger of Saks and Neiman Marcus has the talk of that has been since the 2000s when they're, you know, these, these department stores. The business model is just so challenged that I talked to Gene Pressman for a story recently. One of the family members behind Barney's, they, they filed for bankruptcy in the 90s. And he said to me that business was. It was long before the Internet that this business was challenged. So it's always been the Internet just made it that having so many stores didn't make sense anymore. Neiman Marcus does very well in the Sun Belt. Saks Fifth Avenue does better in the North. It has always made sense to me that they would be owned by the same people and then they would reduce their store footprint which. Which Saks Global has vehemently said that they won't be doing because I think to get it passed so easily they had to kind of say we're not going to close many or any stores.
- [19:56]
Bill Cohen
Through.
- [19:56]
William Cohen
Through the ftc. But yeah, the way that this came about, I, I know that the Neiman Marcus board, there were people who were really against this because they didn't think it would work out. And then obviously there were these hedge fund guys who I from. I think there were three investors and two were very pro and one was against it for whatever reason. But I think that there was even tension on the Neiman Marcus board about we know that this has to happen. Geoff Waugh, who was the CEO of Neiman Marcus Group was kind of understood that that was gonna be the end result was that Sachs would eventually take over and Mark Mettrick would run the whole thing. But the circumstances Sachs at when, when the merger was approved in. Or the. The whatever you want to call it was the sale was approved in July.
- [20:56]
Bill Cohen
2024, announced in July and then closed in December.
- [21:01]
William Cohen
Yeah, Neiman Marcus Group didn't owe anybody any money because they had Filed for bankruptcy a few years ago and they were sort of, their cash flow was because they didn't have any debt, they were able to kind of move through and pay people on time, which is a very common occurrence. I just did a story last week about this Italian department store or multi brand retailer, Luisa Villaroma. They owe people tons of money. This is very common in this business. But Saks in particular owed so much money partially because of the situation at Hudson's Bay in Canada, but they owed some vendors tens of millions of dollars. And so I knew that Richard Baker would stop at nothing to make it work. But the fact that they were able to pull all these people in. I remembered a few weeks before you started doing your reporting this year, I talked to someone who helped finance it and they were like, we're very confident it's going to be fine. And this was after the vendor letter that Mark said, we're not going to pay. It's going to be instead of 30 days, we're going to pay you what you're owed. It's going to be 90. And then on top of that, all the millions of dollars that we owed you from pre deal, we're not going to start paying till July and it's going to be in monthly payments. How much are those monthly payments going to be? So it always felt kind of crazy to me and even from my side where, as I've said to you Bill, this is gonna mess up if they go under. Like this is really bad for the luxury industry. The big players will be fine because they work on a concession model. They essentially rent space from these stores so they're gonna be protected. Like when Barney's went out of business and liquidated, there was a list, a printed out list of brands that were not on sale and it was all lvmh. So like lvmh, the big carrying brands that are concession will be okay. But this is a lot of these, these brands, it's 40% of their business is just in these three stores. When did you again start like poking around and looking at the number at the trading of that bond to see.
- [23:29]
Bill Cohen
What was happening, you know, around the time of your Valentine's Day massacre stories. Anytime you see payables going from 30 days to 90 days, you see a retailer doing that. You know, I worked on the Allied Federated bankruptcy in the early 90s. Okay. Which was then, I think the largest bankruptcy ever at that point. I worked on the Revco bankruptcy before that. So when you see that happening, stretching payables that is like, that is such a red flag on Wall street that, you know, so I was wondering, well, what's the yield on the bonds now? How's that trading? So it was trading at par 100 cents when it was issued. And the, you know, the interest rate, the yield was 11%, but the bond was trading down and yielding over 20%. Now I think it's yielding over 30%. So when bonds yield that, that means bondholders or people trading in the secondary market of the bond want or expecting a equity like return because obviously 20%, 30%, those are equity returns, those are not debt returns. So people are basically saying this is so risky that I need to be paid a whole lot of money to buy this thing. And when you start seeing trading like that, especially in retail, as you were saying, it can be a self fulfilling prophecy and be a vicious cycle down, which to some extent it's been. I mean they've, but part of the problem here is that it's a, even though the bond is publicly traded, it's obviously a private company. They don't have any financial filings with the sec. The company wouldn't even share the bond prospectus with me. So of course I made it my mission to find the bond prospectus, which I did. And you go in there and you see what they were promising bondholders that they were going to do and it was just like blowing my mind about the kinds of things they promised that they were gonna do. And as I said at the beginning part of the conversation, it was that sort of euphoric moment. And good for Jeffries for figuring that out after the election and before the inauguration where people were willing to believe all sorts of things about what Trump may or may not do for the economy. And so, you know, when you start seeing it trading like that, then you just know there's trouble between that and this and, and the, the payables that you're, you're, you're, you know, pushing out. That's, you know, and it's kind of been a, a little bit of a downward spiral since then. They've now hired restructuring advisors, legal and financial, on both creditor side and the company side, which again is a leading indicator. You know, I guess I've dug into the indenture related to the ABL line about whether or not they can in fact use their inventory and receivables facility to pay for general corporate purposes, which would allow them to make this $130 million interest payment on the bond in June. And believe it or not, I Guess they can do that. And I'm sure that is exactly what they're going to do. You know they can do that. Okay, fine. But that may not be the best idea either. If I were advising them, I would really seriously consider not making that bond payment or at least using the next 30 days. Plus I think you usually get like a 30 day grace period. So you could use the next 60 days, you know, like Trump, like next 60 days. Suspending things for 60 days and seeing if you can cut a deal with your bondholders about converting some of that debt to equity and sort of alleviating some of the pressure here on the company financially. But I suspect what they will do is use that ABL line to make that interest payment. I mean they're not Elon Musk. Elon Musk was paying interest on the ex Twitter debt out of his own pocket because the company couldn't sustain those interest payments. But you know, Richard Baker and Sachs Global are not. I mean Jeff Bezos could step up and make those interest payments if he was so inclined, but I'm sure he's not going to do that.
- [28:12]
N/A
Just got a new puppy or kitten. Congrats. But also yikes. Between crates, beds, toys, treats and those first few vet visits, you've probably already dropped a small fortune. Which is where Lemonade pet insurance comes in. It helps cover vet costs so you can focus on what's best for your new pet. The coverage is customizable, sign up is quick and easy and your claims are handled in as little as three seconds. Lemonade offers a package specifically for puppies and kittens. Get a'llemonade.com pet your future self will thank you. Your pet won't. They don't know what insurance is.
- [28:49]
William Cohen
I think the Amazon piece which you brought up in one of your recent pieces and, and kind of. So Amazon Fashion took a some sort of in stake in this business and then they've. Saks has subsequently launched on Amazon Fashion which Amazon Luxury has been this thing for the last, I don't know, 10 years of is it going to become a thing? Will people ever allow their products to be sold on Amazon? And if you see the mix of brands that were and this comes back to the broader inventory issue that I think they're having. But if you look, if you just, if we talk about the Amazon Fashion part of it for a minute, my whole thing has always been that Amazon should have just bought out a porte 10 years ago or longer. Now it's like 12 years ago it would be like them buying Whole Foods, this isn't that big of a business. But it gives them customer data that they would not have that they have that profile of customer but shopping that those kinds of products and they should have just bought it. It would have been a better deal for net a porte. They have shopbop. Shopbop operates fairly reasonably and is a sort of higher end middle of brands. But if they wanted luxury luxury, they should have just bought it. They should have bought Moda Operandi, which is, you know, an under $200 million a year business. But again you're like reaching that customer that spends a million dollars a year or more what have you if you want that data instead. They have continued to create these platforms. They have Amazon Fashion, they have Amazon Luxury and have they had a real, a couple really great retailers running Amazon Fashion for a while. Those people got cycled out because they don't fit with the Amazon culture. This Amazon luxury thing launched during the pandemic and it was, you know, no one wants to buy that stuff on Amazon. No brand that's part of a strategic group is ever going to sell on Amazon. And you see the mix of brands on there right now and it's brands that need, that are independent, that need support. And so it's. I just think it's just for, for not. And I can't imagine a circumstance where Amazon swoops in and, and buys all this. It, it would not maybe for the real estate, which is something we can talk about. But that's. Is that even part of, would that even be part of it? I just think it would be. It doesn't make any sense in, in any world. I'm shocked that they even engaged in this way. I think it's dumb. Like there isn't anyone shopping on there. I should try to like find out how much people, how much is getting sold on there. But it, it doesn't make any sense. But this brings me back to one of the challenges with the Amazon fashion element of this deal or luxury. Amazon Luxury. It's a slightly different thing was that Saks was going to have to recruit brands to be on this platform. And when you look like the biggest brands are Stella McCartney, Dolce and Gabbana, these are brands that are a little more experimental and they're also independent and they need the money. They don't. They can't say no. Dialing like walking back even further in this prospectus, there was a lot about like we'll have this much inventory, right, to bet against because I don't think they have as much inventory as they thought they would for several reasons. One, I heard that Neiman Marcus Group was over forecast. People at the company have denied that to me, but was told that to the trading in the luxury world has not been. The US is okay this year, but it hasn't been great, especially with brands that aren't seen as classic like Bottega Veneta is doing well. Laura Piana is doing well. Brunello Cuccinelli I'm sure is doing well. Yeah, I mean it is doing well. They're public company. Not everyone is shopping right now, especially the sort of rich, but not that rich for these types of goods. And I think the trading has just been way, way worse than they could ever imagine. And the inventory level's way lower. And so that's another challenge on top of just owing everybody in the entire world a bunch of money.
- [33:37]
Bill Cohen
The prospectus had a very novel idea that I guess Sachs had not because of this vendor issue. They hadn't paid their vendors. Yeah, which explains why they weren't getting inventory. Duh. That after the merger they could join together with Neiman and therefore they could expect. They promised bondholders that they would have more inventory and then if they just got their usual margin on that inventory, it would result in I don't know what the number was like 120 million more of adjusted EBITDA or whatever as part of their buildup to this $707 million EBITDA adjusted EBITDA number. So this idea that, oh, here we're going to pro forma our EBITDA for this clever idea that when we normalize our relationships with our vendors, we'll be able to get more inventory which we sell at our usual margin. That'll generate 120, more million of EBITDA this fiscal year pro forma ending like end of January 2025 than we did last fiscal year. Except yeah, that was an interesting concept which bondholders bought off on, which again, that's part of this euphoria that I was talking about, which makes absolutely no sense. But hey, people get excited about things and they have very short memories with what can happen, obviously. And then of course you stretch payables in February and that whole gambit is obviously not working out. So, I mean, there were just some fantastical promises and assumptions made in that bond prospectus. It's literally a classic of of the genre and I've seen a lot of these and it was a classic based on which I pointed out in how they built up to this 707 pro forma adjusted EBITDA number but again you know, caveat emptor. It's Jeffrey's job and the company's job to sell and it's investors job to be cautious of what they're pitching and to maybe stay away. But when you tempt them with an 11% coupon then that's why they start biting. You know, it's like chumming the waters and then the, the fish come around and now they're paying the price. They've literally lost half the value of their investment in what, five months. I mean that's, that's fairly extraordinary.
- [36:32]
N/A
Put us in a box. Go ahead. That just gives us something to break out of because the next generation 2020 GMC terrain elevation is raising the standard of what comes standard. As far as expectations go, why meet them when you can shatter them. What we choose to challenge, we challenge completely. We are professional grade. Visit gmc.com to learn more.
- [37:02]
In case you haven't heard, it's officially in Abercrombie summer. The A and M vacation shop has everything on your packing mood board. I desperately need their new one piece, the A and F Marina. It's strapless, so flattering and paired with denim shorts will be my go to beach outfit this summer. Finally. Your suitcase isn't complete without finding that dress. You know, the one for the photo shoot. Abercrombie's boho dresses have that perfect beachy romantic look. Make it an Abercrombie summer shot. Their newest arrivals in store online and in the app.
- [37:35]
William Cohen
Okay, some quick questions about what may happen next. You think they're going to make this? What is 120 that's due or 130 that's due in June?
- [37:48]
Bill Cohen
I don't think they should but I think they will and they will use their ABL line to do it. Which if I were an ab. If I were the ABL lender, which I think is bank of America, which also is one of the underwriters on the bonds, which may be one of the reasons why they're being gracious here. You know they can use this line secured by the inventory and the receivables for general corporate purposes. We know they said they have a 400 million availability. They said that to bondholders a couple weeks ago. We know they have that and they've made a big stink about how they have that. So I'm sure they're going to use 130 million of it, whatever it is, 120 to to make this payment in June. So they Buy themselves another six months. But from a bankruptcy advisory perspective, from a strategic tactical perspective, I'm not sure that's the best thing to do.
- [38:45]
William Cohen
What would you do?
- [38:47]
Bill Cohen
As I said before, I would ask for 30 days of forbearance and use the next 60 days to negotiate with the bondholders and their representatives about, you know, clearly we got a problem here guys. We've got too much debt. We got to do something about these bonds. We've got to convert some of them to equity and you know we're going to cut you into the equity table here by converting some of that debt to equity because we can't afford to, you know, the business cannot afford to pay you 11% on 2.2 billion every year.
- [39:24]
William Cohen
The other thing that's due in June are the payments for the first 90 day thing. That is going to be tens of millions and it might be hundreds of millions of dollars. How will they pay that?
- [39:44]
Bill Cohen
Well that obviously can come directly from the ABL line because you know it's paying for inventory. They also have as I hadn't realized but this debt wire report pointed out have this commercial mortgage backed security based on this joint venture that they have with, with the Simon Property Group which they own 62% of which is a bunch of old Lord and Taylor land, perhaps some stores, some sack stores where you know they've got, they owe that has to be repaid. And the question there is whether there's going to have to be. They're going to refinance it probably and they'll probably succeed at refinancing it. But the question is have the value of the underlying assets declined sufficiently that they can only refinance a free fraction of the outstanding and they have to make up the balance with equity from the two partners which could cost Sachs another hundred plus million dollars as the debt wire folks pointed out. That's another hit here. See they've got, you know, they're going to start looking like St. Sebastian here for a minute, you know, in a minute with all the arrows coming into them. And that's why I would not make this bond payment or I would, you know, get forbearance for 30 days to see if I could cut a deal with bondholders.
- [41:12]
William Cohen
And the Simon joint venture money is due in August. Right.
- [41:17]
Bill Cohen
And it's 600 million, it's 599 million of which you know, of this joint venture I think Sachs owns 62% and Simon Property owns 38%. So if they re, do you know how are they going to pay this 600 million. Okay. They're going to go to try to issue a new commercial mortgage backed security based on the asset value of the underlying property that's part of this deal. And you know, a loan to value ratio of like 80%. I don't even know if that's operative anymore. But say it is operative and they can get loan to value of 80% then, then you go back to look at the appraisal, then they have to get this appraised. And who knows, I mean these properties have probably lost value in recent years if for no other reason than interest rates have gone up in the past couple of years since they issued this cmbs. So the appraisal is probably gonna come in lower. So 80% of a lower number will get you below 600 million. And then they're gonna have to make up the difference or default on that with those borrowers, I mean lenders. So you know, that's. To make that up is going to require more equity from Sachs Global and from Simon Property Group. Now Simon's not going to have a problem making that payment, but Sachs would and there's 62% of it. So this is another curveball that they've got to deal with in August.
- [42:53]
William Cohen
Do you think they will start paying these back payments back in July as they have promised?
- [42:59]
Bill Cohen
If you wrote, Our buddy Mr. Metric has promised that. By the way, one thing I was so interested, his father was Richie Metric, who used to be at Bear Stearns, who I wrote about in my Bear Stearns book from 2009, a book about how Bear Stearns collapsed. You know, he's a savvy, you know him better, much better than I do. He's charming and savvy and, you know, fun to hang with. But you know, he's got a real nightmare on his hands. I don't envy him.
- [43:37]
William Cohen
No, I mean, the thing about Mark from my perspective is he has been in service to Richard Baker for most of his career. He's worked at Saks for almost, I think all of his career or. And anyone who's listening to this should listen to my interview with Mark. That happened before a lot of this other stuff happened where he did say he would, they would start paying those, those back payments in July. What that actually means, is it $100 per per account? I don't know. But is that, you know, he, he's a retailer and he needs to be, he's in the customer service business and this is making it very hard for him to do this job that he's worked I mean, his entire career for like this job. If, if you're in 2005 and you see the way the world's going, eventually these, these two businesses are going to be one and someone's going to run it. He, he got the golden ticket in that way, but in this other way, it's a nightmare to wish for business. Yeah. So the question I had for you recently, and maybe you can explain this in a very simple way, can they just sell a couple buildings to, to pay for it? Like, because they own a lot of. And I know it's a, this is the thing. It's so complicated. The real estate, there's the Simon Properties joint venture, but then there' another joint venture with another. With Hudson's Bay Real Estate. And could they just sell a couple.
- [45:23]
Bill Cohen
Of the Fifth Avenue store.
- [45:24]
William Cohen
Yeah, yeah.
- [45:26]
Bill Cohen
Look, look, the, the, the, you know, that's where, you know, you need the sophisticated restructuring lawyers who can read those indentures and figure out what can be, what's, what's security backing various bond deals can do those indentures permit the sale of assets? Are we having a situation where there'll be creditor on creditor violence where some creditors are advantaged over other creditors, which has been a thing lately. Are all these store sites pledged as collateral for various loans and bonds that already exist? So if they're pledged as collateral to secure those bonds, then I'm not sure they can just out and out sell them. You've begun writing very interestingly about whether Burgdorf could just be sold. And your friends in Paris probably would love that. They can really corner the corner. Literally corner 57th and 5th on every corner of 57th and 5th. You know, could that be sold separately? Probably. I don't. You would know better than I how big a business that is and what that might be worth. Could that, is that part of somehow the security package, can that be sold to pay down debt? You know, is that, would that be a smart thing to do? You know, the thing is that everybody knows we're in a distress, distress situation here with this company. So we have a distressed seller and opportunistic buyers. You know, that's not where you want to be.
- [47:15]
William Cohen
No.
- [47:15]
Bill Cohen
Because your pocket's going to get picked. But, you know, Mark Metric may not have any choice here. He's, you know, the Titanic might be going down. I mean, you know, and we're talking about it really, but we're talking about what happens with a lot of these. I mean, I think you would know better than I, but I Think Barney's is the rare situation where the company had to. Was liquidated mostly. You know, with Allied Federated they just reorged it, changed the capital structure, sold off pieces and you know, there's still a Bloomingdale's, there's still a Macy's, barely, you know. Will there still be Sachs? Yes. Will there still be Neiman? Yes. Will there still be Bergdorf? Yes. It'll just perhaps instead of being owned by my old friends at the Rhone Group from Lazard and Salesforce and Amazon and Richard Baker. Yeah, it might be owned by these bondholders.
- [48:09]
William Cohen
Yeah, the Allied Federated. Was Brooks Brothers in there too?
- [48:13]
Bill Cohen
Brooks Brothers was in there and Taylor was in there. That was quite a scene. Man, that was incredible.
- [48:21]
William Cohen
Yeah, it sounded like. I've talked to Mickey Drexler about it because he's worked at, I think both at Bloomingdale's and, and then at Ann Taylor before. I mean probably 10 years before it happened. But there was also Mike Jeffries work there, I think, who ended up being the CEO, Abercrombie. Maybe we can do a, a flashback episode about it.
- [48:42]
Bill Cohen
Oh my God. There was so many amazing things that happened in that bankruptcy that were precedent setting. And I represented the Allied bondholders who had security. Their security was Brooks Brothers and Ann Taylor. The equity and those things. And that got. Campo just used the equity of those two companies to buy Federated after he already owned Allied. And that was a major fraudulent conveyance that we won and forced the estate to give us 400 million more value than otherwise would have been given in the restructuring. It was. Things that went on were just wild. But history repeats itself. This is pretty crazy too. I mean, not being able to make your first bond payment or in a position where the market doesn't know if you're going to make that first bond payment is crazy.
- [49:39]
William Cohen
Bill, why does this happen? From my perspective, it happens because the margins on this stuff are not. On a lot of this stuff are not great. The stuff that have good margins is a concession model. So like Gucci bags and Louis Vuitton bags and Chanel bags. They're just running space from these department stores and have been for a really long time. But and, and clothing, the margins are good, but then they're discounted so heavily that you, you don't, you could make, you're supposed to make 60% on this stuff. You can make 20% if you're lucky, that type of thing. And, and you just get underwater fast. But from your perspective from the business side, is it just that like these retailers tend to be over leveraged or like why, why do investors keep betting on them? I would never invest. I mean, this is no investment advice on this podcast. I would never invest in a retail stock. Like it just isn't. It's so cyclical. It's so, you know, I don't know.
- [50:43]
Bill Cohen
Well, as you said, Lauren, this has been a tough business for a very long time. And I'm sure, I mean, we didn't even touch on the fact that Richard Baker, you know, owned Hudson Bay's, which is literally in the process of being litter liquidated as we speak. This like 400 plus year old company, the oldest retailer in North America or.
- [51:01]
William Cohen
Whatever, the oldest company in Canada.
- [51:03]
Bill Cohen
Right. Is literally being liquidated while we're having this conversation. And Richard Baker, you know, owned it. So I mean part of it is hope springs eternal. Right. Well, we're having trouble at Sachs. Neiman had trouble, is now owned by its hedge fund creditors who want to get out of it. So this clearly put the two together and abracadabra, 707 million of pro forma EBITDA. So of course with 707 million of pro forma Ebitda, as crazy as that pro forma number is, you can easily pay the interest on 2.2 billion of debt plus your ABL line, plus your CMBS, plus all the other crap you got in your balance sheet. So I'm sure he's like an eternal Optus. I never met him. So I know retailers, they're eternal optimists. But it's an incredibly tough business before retail purchases on the Internet where you go direct to your customers and save the trip to the store, save the trip trying on things which a lot of people find much more convenient, obviously. So it's just gotta be even more brutal now. And yet, and yet, you know, your friends in Paris, you know, are, you know, he was one of the richest men in the world. He's been able to pull that off in an extraordinary way. As tough as it's been so far in 2025.
- [52:32]
William Cohen
Yeah, he used to be vying for number one or two spot and now he's number six. Okay, so down a bit. But, but the difference between, yeah, the difference between what Bernard Arnault does, first of all, they sell totally direct. And also he isn't. The reason he owns Le Baumarche is not to make money or La Samaritan, it's to understand the customer. And also he believes he is investing in like culture. Culture. And he creates culture. And so those are sort of. They just bought a restaurant, they buy.
- [53:08]
Bill Cohen
They own wineries.
- [53:10]
William Cohen
Exactly. They are the big backers of F1 for the next 10 years. And they own 75 different companies, many of which do not sell clothing or even handbags. And fine jewelry is doing really well right now. So they're seeing Bulgari is killing it, that type of thing. So his business and the business of these stores, the retail business are two different things. And also his business is so based on the real estate and the games with the real estate and all that. Where I mean this is obviously real estate too, but it's just a different kind of real estate. Richard Baker's family made all their money on like outdoor shopping malls in middling suburbia type thing. So it's different. But there are very few people who can make real money on this. And okay, speaking of Arnaud and the Bergdorf thing, my thing with that is the Goodman family owns the building and they own it for. I think there's at least 20, 50. There's another thing that comes up earlier that someday I'll write about, but not today. Arnault Financial people have said publicly we do like to buy buildings, but we also are happy to rent in. Good. We don't see a huge difference in valuable places like Rodeo Drive, Fifth Avenue, Champs Elysees, though maybe not Champs, but like Avenue Montaigne, all that stuff. I do see a world. And Bergdorf is run separately from Neiman Marcus and Sachs. They have a different management team. It's smaller, it's definitely under $500 million a year in sales. It's probably well under that because it's one store. And then the website, maybe it's 500 a year in sales. But most of these places, you get past that and you get into real, real trouble. So I could see a world in which there's some sort of carve out or what. I don't know what the financial term is. Where Bergdorf is sold to Arnault and is seen as, you know, he uses it in the US the way he uses the Lebanon Marche in, in Paris. He knows it's not a good business. They, they've tried, they did something with Lebanon Marche's website 247 and tried to make that into like a net, a porte competitor. It wasn't possible. And he was like, I'm not dealing with this stuff. It's. It's a silly business. What do you think happens now? Do you think in six months from now they, the creditors own it? Do you think in six months from now they liquidate. Do you think it's going to be earlier because of the fact that, do you think there's a way in which Richard Baker could figure out so that he keeps control of managing Sachs? Like, do you think that's possible? Because everything I, I've reported on about him is, yes, he's a real estate guy. Yes, he's just about getting the deal done. But he also, he cares about being a retailer. And an interesting thing that has happened in the last six months is right after Mark sent that letter, I'm at Paris Fashion Week, I'm at the Schiaparelli show, and I see Richard Baker and his wife and Mark and his whole team, which, of course, they have to be there and show that they're supporting and they're gonna pay and all that stuff. But Richard Baker is not someone I'd ever seen at a fashion show before. I'm sure he had gone to them, but he isn't. Like, he isn't doing the Fashion Week roadshow. And he was there. He went to a ton of shows. A couple weeks ago, he was at a retail conference talking about how they're decreasing the number of brands they sell on purpose, which I half believe. But he's been really public and acting like everything's okay. I know that's like five questions, but I guess it is. They are acting like everything's gonna be fine. What do you think is going to actually happen? And do they have to act like that right now in order to just.
- [57:39]
Bill Cohen
Of course they have to act like everything's going to be fine. Otherwise, never admit to any problem until you basically have no choice. I mean, the market is speaking. They can act like nothing's happening, everything's going to be fine. But when your bonds are trading at $0.50 on the dollar and yielding more than 30%, the market is speaking. So they're going to have to do something. They're going to have to restructure, going to have to convert some of that bond debt into equity. And, you know, depending on who owns what now and how much Richard Baker owns, you know, he could lose control and maybe he should lose control. He kind of blew it with Hudson Bay, he's kind of blew it with Sachs. He's kind of blowing this merger. Maybe he's not that good at what he's doing. And the winners here, ironically, were probably the Neiman Marcus creditors, hedge fund creditors, who, I don't know what they bought their stakes for when either in bankruptcy or out of bankruptcy or before bankruptcy or whatever, but they got, whatever, 2.7 billion in cash last December, so they're sitting pretty, so buying these bonds. And I know that there are hedge funds who are swarming around these things. If you can buy at 50 cents in the dollar, convert it to equity and get control of Sachs, Neiman, Bergdorf, you know, you can probably be fine. But that's not going to be a good day for Richard Baker or for Roan Group or Salesforce or Amazon. Not that they care, but, I mean, so, yeah, something's got to happen here. That's all there is to it.
- [59:30]
William Cohen
Bill, thanks for taking the time.
- [59:32]
Bill Cohen
My pleasure.
- [59:33]
William Cohen
Really fun.
- [59:34]
Bill Cohen
Thank you.
- [59:34]
William Cohen
Whatever happens, happens. You'll have to come back. Oh, it'll be emergency pod.
- [59:39]
Bill Cohen
Yeah.
- [59:40]
William Cohen
Fashion People is a presentation presentation of Odyssey in partnership with Puck. This show was produced and edited by Molly Nugent. Special thanks to our executive producers, Puck co founder John Kelly, executive editor Ben Landy and director of editorial operations, Gabby Grossman. An additional thanks to the team at Odyssey, JD Crowley, Jenna Weiss Berman and Bob Tabador.