Sears’ survival remains in doubt as credit rating continues to plummet
Sears shares slid on Friday after its credit rating was downgraded for the second time in seven days, following moves by the beleaguered retailer to restructure its significant debt.
The stock price fell 24 cents, or 8.6%, to close at $2.54 a share Friday, in the wake of a report that S&P Global had lowered the company’s credit rating to CC from CCC-, a downgrade that leaves the iconic retailer teetering on the edge of junk status. And the credit agency warned that Sears’ rating could plunge further.
Sears, which has borrowed millions of dollars, closed hundreds of stores and sold off one of its signature brands to stem its steep financial losses, announced Jan. 10 that it would seek to restructure potentially more than $1 billion of its corporate debt.
In recent days, the company has released more details of how it would handle those financial obligations, including exchanging some of its secured and unsecured notes in order to change the terms of a loan agreement.
That led to a further slide in its creditworthiness.
“We would treat the proposed transactions, if completed, as tantamount to a default,” S&P Global Ratings said in a note Wednesday.
A week earlier, S&P cut Sears’ credit rating from CCC to CCC- after revealing it had raised $100 million in new financing and was seeking another $200 million from other counterparties.
The company also said it had amended second lien notes that were scheduled to mature Oct. 15, partly to raise its borrowing base advance rate for buying merchandise. Sears noted $200 million in cost cuts on an annualized basis this year that were not tied to store closures.
S&P Global said it would probably consider those financing changes “as distressed” because lenders might “receive less than ... the original promise on the current debt.”
Sears said it had no comment on the recent downgrade.
Last year, Sears announced several rounds of store closures that would shut the doors of more than 400 locations, leaving it with roughly 1,000 store fronts after the holiday shopping season. On Jan. 4, Sears Holdings said it would close more than 100 more Sears and Kmart stores this spring.
For some, the credit downgrade confirms that Sears’ outlook is bleak. “This is bad, but not unexpected news,’’ says Neil Saunders, managing director of GlobalData Retail. “Sears has been on a trajectory to failure for a long time. However, this announcement suggests the moment of impact is getting closer.’’
Still, he added, “history has taught that Sears’ survival instinct should never be underestimated.”