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Sears CEO pushes new plan to avoid bankruptcy

ESL Investments proposes plan to prevent Chapter 11.

BY Marianne Wilson

With a big debt payment coming due, Eddie Lampert, the chairman, CEO and biggest shareholder and creditor of Sears Holdings Corp., is making his biggest push to date to save the beleagured company from filing for Chapter 11 bankruptcy protection.

ESL Investments, the hedge fund run by Lampert, has come up with a plan that would essentially translate into a wholesale financial restructuring of the company but without a Chapter 11 filing. It would significantly reduce the struggling retailer’s $5.6 billion debt load, cutting it by nearly 80%. The plan, outlined in a securities filing made by ESL on September 24, include selling off many of Sears’ remaining stores and asking lenders to exchange their loans for equity stakes in the retailer.

In the filing, ESL warns that Sears is facing “significant near-term liquidity constraints,” with $134 million in debt coming due in October.

Under the ESL proposal, Sears would sell about $1.5 billion worth of real estate, much of which the retailer has used in recent years as collateral to generate liquidity, and about $1.75 billion other assets, including Sears’ Kenmore appliance brand, which ESL first proposed buying back in the spring. Some of the stores would be leased back to Sears, the filing said.

“Sears must act immediately to have sufficient runway to continue its transformation,” ESL said in its proposal.

Neil Saunders, managing director of GlobalData Retail, said that the new ESL proposal would indeed help Sears pay down pay down some of its enormous debt and provide it with a “buffer” of liquidity. But it does not get to the root of Sears’ problems.

“As usual, Sears is focusing on financial maneuvers and missing the wider point that sales remain on a downward trajectory. Saunders said. “In our view, this is because both Sears and Kmart are suffering from chronic underinvestment and a lack of clarity in terms of their proposition. Even in a strong consumer economy, customers are still drifting away to other brands and retailers.”

In a statement, Sears said it had received ESL’s proposal and the board had asked its legal and financial advisers to work closely with ESL and other stakeholders to pursue “liability management transactions” similar to what ESL has proposed. Sears said any move would require approval of its advisers and independent board members.

“There can be no assurance that any transaction will be consummated or on what terms any transaction may occur,” Sears stated.

 

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