Sears shares plunge on re­port of im­pend­ing bank­ruptcy fil­ing

Move could come ahead of a $134 mil­lion debt pay­ment due Mon­day

The Washington Post - - ECONOMY & BUSINESS - BY RACHEL SIEGEL

Sears, the fallen iconic Amer­i­can re­tailer, has re­port­edly hired an ad­vi­sory firm to pre­pare a bank­ruptcy fil­ing.

The fil­ing could come this week in an­tic­i­pa­tion of the com­pany’s $134 mil­lion debt pay­ment due Mon­day, the Wall Street Jour­nal re­ported. The bou­tique ad­vi­sory firm, New-York based M-III Part­ners, has spent the past few weeks work­ing on the fil­ing, the Jour­nal re­ported. Nei­ther Sears nor M-III Part­ners re­turned re­quests for com­ment.

Sears shares were down more than 36 per­cent in mid­day trad­ing Wed­nes­day.

The 125-year-old re­tailer has been hit par­tic­u­larly hard as bricks-and-mor­tar stores have strug­gled to main­tain mas­sive show­rooms and com­pete with e-com­merce gi­ants. But if Sears is now in touch with banks to se­cure the fi­nanc­ing needed for a bank­ruptcy fil­ing, as CNBC re­ported Wed­nes­day morn­ing, that could send the surest sig­nal yet that such a move may not be far off.

On Tues­day, Sears also brought in restructuring ex­pert Alan Carr as a com­pany direc­tor, broad­en­ing the six-per­son board to seven and adding fur­ther guid­ance on how to steer a large com­pany through a bank­ruptcy fil­ing.

Just weeks ago, Sears chief ex­ec­u­tive Ed­die Lam­pert de­vised a last-minute plan to save the re­tailer. The com­pany has a to­tal of about $5.6 bil­lion in out­stand­ing debt and is down to about 820 Sears and Kmart stores. When Lam­pert took over as head of the com­pany five years ago, there were 2,000 stores. Lam­pert bought Sears in 2004 and merged it with Kmart, in which he had a con­trol­ling stake, the next year.

Lam­pert — Sears’s largest share­holder and cred­i­tor and the owner of the hedge-fund ESL In­vest­ments — asked cred­i­tors last month to re­fi­nance $1.1 bil­lion in debt be­fore the Oct. 15 pay­ment, ac­cord­ing to a fil­ing with the Se­cu­ri­ties and Ex­change Com­mis­sion. He also called on the com­pany to sell off $3.25 bil­lion in real es­tate and as­sets. Those in­clude Sears Home Ser­vices and the com­pany’s flag­ship Ken­more brand, which Lam­pert of­fered to buy in Au­gust for $400 mil­lion.

Lam­pert him­self has had a con­tro­ver­sial ten­ure as chief ex­ec­u­tive. While much of his fo­cus re­volved around Sears’s on­line pres­ence, up­keep on phys­i­cal stores has di­min­ished. Lam­pert’s strat­egy has of­ten in­volved keep­ing Sears afloat with loans.

In the Septem­ber SEC fil­ing, Lam­pert’s hedge fund said it “must act im­me­di­ately to have suf­fi­cient run­way to con­tinue its trans­for­ma­tion” if Sears could ever pull off a turn­around.

Matt Kop­sky, an an­a­lyst at Ed­ward Jones, noted that Sears has not turned a profit since 2010 and that it has al­ready sold off a ma­jor­ity of its brands, in­clud­ing Crafts­man tools. The com­pany owns roughly half of its real es­tate and has sold off most of its more valu­able prop­er­ties.

Were Sears to liq­ui­date, the re­main­ing stores — which av­er­age roughly 140,000 square feet — would flood the mar­ket with “a lot of empty boxes,” Kop­sky said. That kind of liq­ui­da­tion would be espe­cially dif­fi­cult for lower-tier malls and shop­ping cen­ters hard­pressed to find ten­ants in lowde­mand ar­eas.

Kop­sky at­trib­uted Sears’s plung­ing share price to Wall Street pric­ing in an up­com­ing bank­ruptcy. Share prices of J.C. Pen­ney, Kohl’s and Bed Bath & Be­yond were up as of mid­day Wed­nes­day, which Kop­sky said was an in­di­ca­tion that the mar­ket be­lieves Sears will file for bank­ruptcy and that those re­tail­ers will ben­e­fit in the near term.

Larry Perkins, founder and chief ex­ec­u­tive of Sierra-Con­stel­la­tion Part­ners, a firm that ad­vises com­pa­nies go­ing through bank­rupt­cies and other tran­si­tions, said that Sears bring­ing in bank­ruptcy ad­vis­ers “is not a sure sign by any means, but it’s cer­tainly a lead­ing in­di­ca­tor.”

“This has been the slow­est-mov­ing train wreck hap­pen­ing for lit­er­ally years,” Perkins said.

BEBETO MATTHEWS/AS­SO­CI­ATED PRESS

A Sears store in Brook­lyn. The com­pany has a to­tal of about $5.6 bil­lion in out­stand­ing debt and is down to about 820 Sears and Kmart stores. In re­cent years, up­keep on phys­i­cal stores has di­min­ished.

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