S&P downgraded its Saks rating to CCC-plus from B-plus following news that the department store operator received a notice of default on its $230 million, 2% convertible senior notes, from a hedge fund that owns 25% of the notes. The reason for the notice of default was due to, among other things, Saks not filing a 2004 annual report for the year ended Jan. 29.
"Standard & Poor's believes that these financial risks have the potential to lead to an eventual default," says a report issued by the ratings agency. "However, the ratings will be raised if Saks is able to resolve this situation either through timely filing or a receipt of waivers by the senior not holders."
Saks executives say that they intend to release their annual report on or before Sept. 1, "thereby addressing the specific reason the notice of default was issued in the first place."
Saks is selling 47 Southern department stores to Belk Inc. for $622 million. The company is also exploring the sale of 143 units in Midwestern states as well as its 43-unit Club Libby Lu, a specialty, "tween" apparel chain. The company also operates the upscale Saks Fifth Avenue chain, which operates 57 department stores and 52 outlets.
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