Lampert keeps cash in hand as Sears eyes auction

Sears is closing in on a deal with new lenders to finance it through its bankruptcy, according to a person with knowledge of the situation. Eddie Lampert and his hedge fund, ESL Investments, won’t be participating.

Then there’s the retail chain’s plan, announced last week, to auction off the highest-performing stores starting in February at the latest. It paves the way for Lampert, Sears’ chairman and former chief executive officer, to potentially hold on to the best parts of the retail empire by paying with debt rather than cash.

Sears, once the dominant U.S. retailer, filed for bankruptcy protection Oct. 15 after years of decline. Investors, vendors, customers and some 89,000 employees have been watching Lampert, the biggest equity owner and a top debt-holder, for cues to the company’s fate.

They wouldn’t be faulted if they expected Lampert to propose a reorganization plan that would keep Sears intact through bankruptcy. But that likely would have obligated him and his hedge fund to chip in fresh cash.

Lampert’s hedge fund, along with partners, was originally expected to provide the so-called junior debtor-in-possession loan that will double the retailer’s financing to $600 million. But it’s now funded entirely by other lenders. Under the debtor-in-possession loan, Sears is required to name a primary bidder by Dec. 15 for its “go-forward stores” — the viable retail outlets that are expected to be Lampert’s focus.

As one of Sears’s biggest secured creditors, Lampert may be able to make a so-called credit bid, which means he would trade the debt he holds for ownership instead of making an all-cash offer.

That route would probably allow him to leave behind obligations like pension and lease liabilities and vendor claims as he hand-picks a selection of profitable stores to keep open.