SEARS ON THE EDGE

Bankruptcy threat

Eddie Lampert is sounding the alarm.

The hedge fund mogul and largest shareholder in Sears said the retailer needs to quickly restructure its debt or face a possible bankruptcy filing.

Sears Holdings, which includes the storied department store and noted discounter Kmart, has posted losses and lower sales each year since Lampert’s ESL Holdings bought the chains in 2005.

In recent years, Lampert, as chief executive, has been rearranging the deck chairs — selling some of its strongest brands and stores to keep the ailing chains afloat.

With Lampert’s summer offer to buy Sears’ Kenmore brand for $400 million still sitting before the company’s board, the retailer is being forced into more drastic moves.

“Sears now faces significant near-term liquidity constraints” that can only be avoided if the company’s board approves a restructuring plan Lampert is proposing, the company said in a regulatory filing.

Lampert insists that Sears can be transformed into a profitable business — and his buying more real estate in addition to the Home Services unit, for which he offered $80 million, and the Kenmore brand is part of that effort.

Lampert wants to reduce Sears’ debt by 78 percent, to $1.2 billion.

The mogul’s hedge fund, ESL Investments, owns more than 40 percent of Sears’ $5.6 billion in debt, according to a source close to the situation.

A debt payment of $134 million is due on Oct. 15, and it is not clear if the company has the cash to make the payment.

“He’s trying to do a reorganization without the court’s involvement where he can control the terms in a better way for him and Sears,” said Brian Kochisarli, a real estate lawyer at Davidoff Hutcher & Citron.

Lampert may also be trying to reassure jittery vendors as the holiday season approaches.

“He’s also signaling to the vendor community that he’ll have cash,” said Mark Cohen, a professor at Columbia Business School who was head of Sears Canada. “There are vendors likely withholding shipments at this time of year.”

Shares of the Hoffman Estates, Ill., company fell 2.4 percent on Monday, to $1.24.