Strug­gling Sears on brink of bank­ruptcy

Loom­ing debt pay­ment may be the fi­nal straw

USA TODAY International Edition - - MONEY - 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, said there’s “a slim chance” 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.

JEFF CHIU/AP

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

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