Strug­gling Sears on brink of bank­ruptcy

Re­tailer may not be able to pay a loom­ing $134M debt pay­ment

USA TODAY US Edition - - FRONT PAGE - Nathan Bomey

Sears Hold­ings is tee­ter­ing on the edge of bank­ruptcy.

The re­tailer faces a daunt­ing

$134 mil­lion debt pay­ment due Mon­day that looms in­creas­ingly large since the com­pany has so far failed to work out a deal with CEO and largest share­holder Ed­die Lam­pert to re­struc­ture its debts and sell more as­sets.

With heavy losses mount­ing, it may not have enough to make that pay­ment on time.

Now, the com­pany is work­ing with ad­vis­ers to pre­pare a po­ten­tial bank­ruptcy fil­ing as early as this week, ac­cord­ing to The Wall Street Jour­nal and CNBC.

CNBC also re­ported Sears con­tacted fi­nanciers to se­cure po­ten­tial fi­nanc­ing to op­er­ate in bank­ruptcy.

Sears did not im­me­di­ately re­spond to re­quests seek­ing com­ment. ESL In­vest­ments, Lam­pert’s hedge fund, de­clined to com­ment.

In­vestors ran for the ex­its Wed­nes­day morn­ing, driv­ing Sears shares down 26 per­cent to 44 cents in pre­mar­ket trad­ing. Share­hold­ers typ­i­cally lose their en­tire in­vest­ment in bank­ruptcy.

A Chap­ter 11 bank­ruptcy fil­ing would give Sears a chance to cut debt and close more stores in a bid to sur­vive as a smaller, prof­itable com­pany.

But re­tail bank­rupt­cies are risky be­cause many end up in liq­ui­da­tions. In

2017, for ex­am­ple, Toys R Us filed for Chap­ter 11 bank­ruptcy pro­tec­tion with hopes of emerg­ing as a stronger com­pany but then ended up liq­ui­dat­ing in

2018 af­ter fail­ing to reach a deal with its cred­i­tors.

De­spite sev­eral hun­dred store clo­sures in re­cent years, Sears Hold­ings still had 506 Sears lo­ca­tions, in­clud­ing

482 full-line de­part­ment stores, as well as 360 Kmart stores, ac­cord­ing to an Aug. 4 pub­lic fil­ing.

Sears has been bat­tered for years by dig­i­tal com­peti­tors, the de­part­ment store sec­tor’s chal­lenges, costly pen­sions and a fail­ure to in­vest in stores and e-com­merce.

Lam­pert has pulled off a series of fi­nan­cial trans­ac­tions in re­cent years that have given Sears more run­way, ex­tend­ing its life de­spite sig­nif­i­cant sales de­clines. He has also ap­proved hun­dreds of store clo­sures and mas­sive cost cuts.

But crit­ics say Lam­pert has put his hedge fund at the front of the line to col­lect key loan pay­ments and as­sets in the event of Sears’ demise.

The com­pany pays him and his hedge fund an es­ti­mated $200 mil­lion to $225 mil­lion an­nu­ally in debt pay­ments on loans he’s ex­tended to the com­pany, ac­cord­ing to es­ti­mates by Debtwire and Susque­hanna In­ter­na­tional Group re­ported by USA TO­DAY in June.

Lam­pert said last month in a let­ter that Sears “must act im­me­di­ately” on his lat­est pro­posal, in his in­vest­ment ca­pac­ity, to sell more as­sets and shed debt.

Neil Saun­ders, man­ag­ing di­rec­tor of Glob­alData Re­tail, who has tracked the de­cline of Sears, said there’s “a slim chance” that Sears could avoid bank­ruptcy by reach­ing a re­struc­tur­ing deal. But it won’t save the com­pany, he said.

“In our view, this is the in­evitable end game of an ef­fec­tive liq­ui­da­tion process that has been go­ing on for many years,” Saun­ders wrote. “Through­out that time the sale of var­i­ous as­sets along with in­jec­tions of cash from Ed­die Lam­pert have kept the ail­ing re­tailer from go­ing un­der. How­ever, the ac­tiv­ity is akin to bail­ing out wa­ter from a holed ship: It keeps the ves­sel afloat for longer but does noth­ing to sort out the un­der­ly­ing prob­lem.”

Lam­pert’s most re­cent pro­pos­als have in­cluded an of­fer to buy the Ken­more house ap­pli­ances brand from Sears for $400 mil­lion, which would pro­vide crit­i­cal cash to Sears as it seeks a lifeline.

But re­tail in­dus­try an­a­lysts say store clo­sures and as­set sales haven’t fixed the com­pany’s over­ar­ch­ing chal­lenges.

“The prob­lem in Sears case is that it is a poor re­tailer. Put bluntly, it has failed on ev­ery facet of re­tail­ing from as­sort­ment to ser­vice to mer­chan­dise to ba­sic shop­keep­ing stan­dards,” Saun­ders wrote.

JEFF CHIU/AP

Sears Hold­ings has closed sev­eral hun­dred Sears and Kmart stores over the past few years.

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