Time ticking on rescue plan for Sears
Insolvent retailer requests extension of bankruptcy protection to review bid
Sears Canada and its court-appointed restructuring monitor are running out of time to clear the remaining hurdles from executive chairman Brandon Stranzl’s bid to buy the troubled retailer, according to a report from the monitor.
Stranzl’s proposal is the only one that seeks to keep the retailer operating as a going concern, and Sears has asked that the court for more time to work through the bid. It has asked to extend its court protection from creditors, which ends Wednesday, until Nov. 7.
But the Stranzl Group proposal “remains conditional in a number of respects, and accordingly presents significant closing risk and uncertain recoveries,” though the monitor, Sears, and its advisers continue to work to address the deficiencies, the report said.
“The monitor recognizes that Sears Canada is operating at a substantial weekly loss,” said the Oct. 2 report. “With the passage of time the amount that will be available to unsecured creditors is reduced.”
After years of dwindling sales, the insolvent retailer filed for bankruptcy protection through the Companies Creditors’ Arrangement Act in June, announcing the closure of 59 stores and laying off 2,900 employees.
If a going concern solution fails to materialize soon, Sears might seek the court’s approval for a new liquidation proposal that can be implemented quickly, the report said.
Sears requires ongoing financing from its court-approved debtorin-possession (DIP) lenders to keep operating, the report noted, and “the Stranzl Group Proposal as currently presented may not be executable” within the timeline and liquidity available to Sears.
“The DIP credit agreements, as amended, are expected to require that the applicants commence a liquidation of inventory at all stores in the very near future,” the report said.
“The monitor, the applicants and their advisers are cognizant of the fact that liquidation sales in the retail industry yield better results if they are completed before and during the lead up to the December holiday season, which also impacts recovery to stakeholders.”
The report follows news last week that Sears would seek court approval on Wednesday to sell the leases of 11 more stores and a distribution centre, as well as its transport division, three home improvement service businesses, its Corbeil appliance unit, and its Viking appliance trademark.
The terms of the initial Stranzl Group bid offered lower recoveries to non-assumed unsecured creditors than those available through individual sales of the Sears assets and a liquidation of remaining inventory, furniture and fixtures, the report said.
Stranzl is concerned that selling the 11 store leases might harm his bid, because closing financially strong store locations stands to reduce the value of the collateral available to finance it, the monitor’s report said.
But the potential harm of delaying the store lease sales outweighs concerns that selling the leases could hurt “a possible going concern bid that remains subject to all of the uncertainties and completion risks described above.”
The documents also noted that Sears had agreed to pay for costs of a management-led bid if the company’s special committee of directors and the monitor agreed that doing so was “for the benefit of the estate.”
To date, Sears has paid US$105,000 in work fees to lenders supporting the Stranzl Group proposal, the report said.