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NEW YORK – Time is running out for Sears, the retailer's largest investor and general manager, Monday.
Edward Lampert, who is both the owner of Sears' C.E.O. and its most influential shareholder and lender, said he needed to radically restructure his debts to avoid "alternatives."
These alternatives include bankruptcy
Mr. Lampert's hedge fund, ESL Investments, proposed a series of transactions that would reduce the retailer's $ 5.6 billion debt. They include selling a lot of their remaining stores and asking lenders to exchange their loans for stakes in the troubled company.
The proposal, presented by ESL in a custody account on Monday, amounts to a global financial restructuring of the company apart from a bankruptcy filing under Chapter 11.
The deal would significantly reduce Sears' debt to approximately $ 1.2 billion, freeing up cash to reinvest in its distressed retail operations.
Although Sears has been struggling for years, the proposal signals a heightened urgency from Mr. Lampert. His company's proposal warns that Sears now faces "significant short-term liquidity constraints," with $ 134 million of debt maturing in a few weeks.
It was unclear whether the company's lenders would accept an equity offer in the company because it is based on the belief that Sears has a future in retail. Analysts say this is far from certain, as the company continues to lose money and customers to more flexible and skillful competitors.
The latest rescue attempt is also complicated because ESL is controlled by Lampert, who plays an unusual role at Sears. He is the general manager and president of the retailer. In addition to being the largest shareholder, its hedge fund also holds about 40% of Sears debt, which allows it to claim a large portion of the company's assets, particularly its real estate holdings.
A bankruptcy filing would likely reduce what Mr. Lampert could recover, as the fees of lawyers and counselors affect what is left to pay as well as other creditors. Toys 'R' Us, which filed one of the largest retail bankruptcies in history last September, paid hundreds of millions of dollars in legal fees while being forced to liquidate all of its US stores.
"Sears must act immediately to have a sufficient track to continue its transformation," said ESL in his proposal Monday.
This is not the first time Mr. Lampert has sought a deal with a company in which he has significant influence.
Last month, ESL offered the Sears Kenmore brand for $ 400 million. A special committee of the retailer's council always reviews this offer.
His biggest deal was three years ago, when he and other investors formed a real estate company called Seritage and paid $ 2.7 billion for about 235 Sears stores, including many choice. Many of them are transformed into upscale offices, condos and restaurants, which has been a boon to Mr Lampert and other Seritage investors.
Real estate is a key part of Mr. Lampert's latest idea. He suggests that Sears lenders – whose loans are secured by the company's stores – stop earning interest for a year while the company tries to sell these stores.
After a year, if Sears can not sell enough stores to pay $ 1.4 billion in debt, it will sell the stores to the lenders at a price equal to the value of their debt.
Mr. Lampert has the most at stake. His hedge fund holds about $ 1.1 billion of Sears debt backed by the stores, depending on the deposit of securities.
"We are ready and willing to act as quickly as possible to help the company turn into a better positioned company to thrive in the 21st century," ESL said in its proposal.
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