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Sears prepares to file for bankruptcy as early as Friday, sources say
Reuters Reuters 20 minutes ago



By Jessica DiNapoli and Mike Spector

(Reuters) - Sears Holdings Corp (SHLD.O) is preparing to file for Chapter 11 bankruptcy protection as early as Friday, sources said on Wednesday, casting doubt over the future of what was once the world's largest retailer and sending its shares to a record low.

Both Chief Executive Officer Eddie Lampert and a special board committee now accept that only a court-supervised process can determine the company's future, a source close to Lambert said. Talks are under way to arrange debtor-in-possession financing for a bankruptcy filing that could come in the next few days, the source added.

The world's largest retailer in the 1960s, Sears sold everything from toys to auto parts to mail-order homes and was a key tenant in almost every big mall across the United States. It has suffered in the last decade because it did not specialize and was overtaken by online competition from Amazon.com Inc (AMZN.O) and other retailers.

Sears shares were down 37 percent at 36.5 cents. The stock, which traded above $100 a decade ago, has fallen to less than $1 in the past year.

It warned in September for a second time that it could go out of business, hurt by falling foot traffic at its brick-and-mortar stores as customers shift online.

The Wall Street Journal late Tuesday said Sears hired boutique advisory firm M-III Partners LLC to help prepare a bankruptcy filing before a $134 million debt payment comes due on Monday, citing people familiar with the matter.

Billionaire investor Lampert wants to restructure the debt without filing for bankruptcy protection because he views bankruptcy as risky for retailers, the paper said.

The Journal also reported Lampert, who has rescued the company in the past, could make the payment to avert an in-court restructuring. Sears had no comment on the report.

The Hoffman Estates, Illinois-based retailer has posted seven straight years of losses and its sales have not grown since the 2008 financial crisis.

Lampert, who also owns hedge fund ESL Investment Inc, proposed deals to reduce the company's debt load to $1.2 billion from $5.6 billion in September. Lampert and ESL are the company's two largest shareholders.

The Sears special committee is weighing a prior offer from Lampert to acquire the retailer's Kenmore appliances brand and its home services business for as much as $480 million. Sears warned it could go out of business as it waits for approval from the committee on the deal.

In May, Sears said it planned to shut 72 locations by the end of the third quarter to stem losses in the face of deepening financial distress.

In another attempt to avoid bankruptcy, Sears last year sold its Craftsman tool brand to power tool maker Stanley Black & Decker (SWK.N) for $900 million.

Sears acquired discount chain Kmart in an $11 billion deal engineered by Lampert in 2004.

Shares of real estate investment trusts (REIT) exposed to Sears properties also fell Wednesday. Seritage Growth Properties (SRG.N), which has master leases on 230 Sears stores, slid 4 percent, CBL & Associates Properties (CBL.N) lost 1.1 percent and Pennsylvania REIT (PEI.N) was down 0.5 percent.

(Reporting by Greg Roumeliotis, Jessica DiNapoli, and Mike Spector in New York; Additional reporting by Richa Naidu in Chicago; Writing by Nick Zieminski; Editing by Chizu Nomiyama and Jeffrey Benkoe)

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Sears, Kmart stores ailing as CEO Eddie Lampert's hedge fund gets hundreds of millions
Nathan Bomey and Charisse Jones, USA TODAY Published 1:50 p.m. ET June 18, 2018 | Updated 2:53 p.m. ET June 18, 2018

When he became CEO of Sears Holdings, Eddie Lampert declared he was on a mission to restore the iconic retailer to its former glory. Since then he's extended billions of dollars in loans from his hedge fund to Sears and Kmart.

But the difference between what Sears has invested in its stores — and therefore what customers experience when they shop — is stark compared with many of its peers, a USA TODAY review of public filings and analyst research shows. And if the chain ever sinks into bankruptcy, the records show Lampert's hedge fund will be positioned at the front of the line when loans are repaid.

While Sears has spent less to spruce up stores, competitors have taken the opposite approach. Best Buy, for instance, was left for dead five years ago, Since then, CEO Hubert Joly has plunged hundreds of millions of dollars into store upgrades and critical information technology systems. Today, the electronics retailer is back on its feet, having remade itself as a vibrant physical retailer immersed in the digital age.

Sears stores, on the other hand, have fallen into disrepair. Stained carpeting, broken fixtures and dim lighting are commonplace. Analysts, industry watchers and even shoppers predict the iconic retailer doesn't have much time left.

“If you go into any Sears, physically they look like 1982,” said Stacey Widlitz, president of SW Retail Advisors. “So as a customer you’re thinking, ‘This is not a place I’m coming back to.’”

USA TODAY's examination of public capital spending data and research compiled by Susquehanna International Group found Sears and Kmart spent 91 cents in capital expenditures per square foot in the fiscal year that ended in February. In contrast, Best Buy invested $15.36 per square foot in its most recent fiscal year.

Lampert declined to be interviewed for this story and a representative for Lampert’s hedge fund, ESL Investments, declined to comment or to make him available.

In an emailed response to questions, Sears told USA TODAY, “we strongly disagree with your assertion” that the company has not used a sufficient percentage of its resources to reinvest in stores. The company pointed out that its recent investments have included several new smaller-format locations, including Sears Appliance & Mattress locations in Texas, Pennsylvania and Hawaii.

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While Sears has steadily lowered its investment in store upgrades over the last five years, the company has loaded up on loans due to Lampert himself.

By extending almost exclusively secured loans to the company, Lampert's hedge fund has racked up more than $2.4 billion in Sears debt, according to a USA TODAY review of public filings and research by Debtwire, which provides news and analysis of corporate and municipal debt.

Lampert-owned investment funds, including ESL and a related fund called JPP, are getting roughly $200 million to $220 million per year in interest payments from Sears, according to separate estimates from Susquehanna and Debtwire.

As the company bleeds cash and puts prized brands up for sale, some industry watchers question whether a greater focus on its stores — or even a declaration of bankruptcy some years ago — could have put it on the path to profitability. Now, instead, the company's demise may be inevitable.

"Two or three years ago, in a bankruptcy ... you probably had a chance to execute reorganization,'' said Van Conway, CEO of Van Conway & Partners, a financial advisory firm specializing in distressed situations. Now, "I've got to believe when they head into a bankruptcy ... you're going to see a Toys R Us outcome, which will be just a liquidation.''

If that happens, Lampert has put the hedge fund in position to snap up some of the company's prime assets, analysts said. This would come after the CEO orchestrated a series of complex financial deals in which he effectively has played the unusual role of both seller and buyer or lender and borrower.

Lampert has previously said he does not believe in pouring money into stores that would not provide sufficient return on the investment.

Instead, he has pursued partnerships, including recent deals with Amazon.com and Citi that have earned praise from investors, and made loans to the company that have been personally lucrative.

“My conclusion is he’s trying to take the whole thing for himself,” said Susquehanna International Group analyst Bill Dreher, a retail stock analyst who has tracked Sears for two decades and recently estimated that the retailer needs $1.4 billion in fresh capital to make it through the year. Dreher recommends that investors sell the stock. Susquehanna is a market maker in the stock, meaning it buys and sells shares to help investors execute trades.

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