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The hedge fund headed by Sears chief executive officer Edward Lampert has issued his strongest warning to date: the retailer must immediately take steps to recover, calling on the company to restructure its debt and sell its products. assets.
ESL Investments of Lampert wants Sears Holdings Corp. Hoffman Estates-based restructures more than $ 1 billion in debt and sells about $ 1.5 billion in real estate and about $ 1.75 billion in other assets, including the well-known Kenmore brand. Monday in a regulatory filing.
ESL offered to buy Kenmore and some other divisions of the retailer business in April. But the latest proposal is broader and pushes the company to act more quickly in the face of "significant short-term liquidity constraints," including a debt payment of $ 134 million next month.
In its proposal, ESL stated that it believed that its approach would be better for the company's stakeholders than "other options for resolving liquidity issues (Sears)".
The hedge fund did not specify what these alternatives imply. But Sears has additional debt maturing in 2019 and 2020 – partly because of past efforts to hedge losses by pushing back debt. If the retailer can not settle these payments, a bankruptcy filing would be a possible solution, said Christina Boni, vice president of Moody's Investors Service.
Lampert said he thought Sears' stakeholders would be better off if the company could recover while continuing to operate. Retailers who enter a bankruptcy court in order to restructure and stay in business, as Bon-Ton Stores did when filing for protection in February, may wind up in liquidation. they can not find an investor or a buyer.
Sears said Monday it received ESL's proposal and ordered the company's management and advisers to work with the hedge fund. A board committee already negotiating with ESL on the proposal to acquire Kenmore will review the proposed real estate transaction, Sears said.
Sears, one of the most important retailers of the twentieth century, has lost more than $ 11 billion since 2011 and struggled to win back customers. The company has closed hundreds of Sears and Kmart stores and sold parts of its business, including the Craftsman tools brand. The retailer closed its last Sears store in Chicago in July and announced plans to close 46 more stores by November, including a Kmart in Steger and a Sears in Bloomington.
Sears also sold more than 200 stores in 2015 to the real estate investment trust Seritage Growth Properties, in which Lampert holds a stake and chairs the board.
Lampert, in an article posted on the Sears website earlier this month after another disappointing quarterly earnings report, acknowledged that the company's turnaround "has taken much longer than expected."
According to Bob Schulz, chief executive officer of S & P Global, Sears' credit rating is "about as low as possible in the absence of a restructuring transaction".
While Sears has made progress in improving its retail operations, it must do much more than it has done, he said.
ESL said its proposal would reduce the company's debt by 2020 by about $ 4.3 billion, if all proceeds from the sale of real estate and other assets were used to repay the debt. This would leave the company with $ 1.2 billion in debt, freeing up liquidity to invest in retail.
Lampert's involvement in Sears turnaround goes beyond its role as president, CEO and principal shareholder. In addition to his real estate interests through Seritage, he has lent the company more than $ 1.6 billion over the past two and a half years, as well as affiliates to his hedge fund.
In August, ESL offered to purchase Kenmore and a portion of the Sears Home Services division, valuing operations at $ 400 million and $ 70 million, respectively, at $ 80 million. In its Monday proposal, the fund said it could work with other real estate lenders so the company can sell real estate assets. If these sales do not generate enough cash to pay off real estate debts, ESL and other lenders would form a consortium to buy the remaining properties and extinguish those debts.
Lampert's willingness to invest in the retailer makes it harder to tell how much runway the company has left, said Moody's Boni.
"In a more traditional situation, the liquidity would be even smaller, but the external support was considerable," she said. "It's a unique situation."
Sears said any transaction would require the approval of its board of directors and a subcommittee to oversee transactions with related parties.
Twitter @laurenzumbach
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