Sears burning cash while betting on loans

Fast-dwindling cash is casting doubt on whether Sears Holdings Corp. can firm up its survival plan in time to avoid liquidation.

Sears is expected to bleed $220 million in just the first month of its bankruptcy, court filings show, cutting deep into the $300 million loan it secured this week from senior lenders. The crunch could become more acute if Sears doesn’t get an additional $300 million it’s counting on from Chairman Eddie Lampert to keep operating beyond the next 15 days.

The retailer is staking its turnaround on getting a $112 million loan from Lampert’s ESL Investments hedge fund by Nov. 3, according to a budget approved by the court, and another $188 million over the following two months. The new funds, Sears said in court papers, “will not be required for the Debtors to operate during the first two weeks of these cases, but will become necessary thereafter.”

Friction could develop over issues such as what assets Lampert would get as collateral, whether he gets to be the lead bidder to buy some Sears stores, and what concessions creditors will make — if any — to settle their claims against him.

Sears’s historical cash needs suggest the existing $300 million in financing won’t last long, said Steve Goldberg, president of the New York-based retail consultancy The Grayson Co.

“It’s not a lot, considering their obligations with paying vendors, not to mention staffing and other operational costs,” Goldberg said.

By comparison, Toys R Us borrowed around $1 billion when it filed bankruptcy, and it still burned through that cash too fast to survive. The experience left creditors and vendors wary.

“There is no such thing anymore as too big to fail. We learned that with Toys,” said Kenneth Rosen, chairman of the bankruptcy and creditors’ rights practice at Lowenstein Sandler in New York.