Sears Canada Hires Bankruptcy Advisory Firm

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The firm represents Target Canada in its insolvency proceedings.

The shares of Toronto-based Sears Canada plunged as much as 50% early today, from very little to even less, to C$0.50 at the low point before recovering some and ending down 24% for the day at C$0.87, on its bumpy ride to zero.

The company announced in its first quarter results that there are “material uncertainties” about its “ability to continue to satisfy its obligations,” that it has doubts about its ability “to continue as a going concern,” and that lenders weren’t willing to keep it afloat for the next 12 months.

It further announced that it hired one of Canada’s leading bankruptcy and insolvency advisory practices – the same law firm that is representing Target Canada in its insolvency proceedings.

Sears Canada was partially spun off from Sears Holdings in the US, which still holds a 12% stake, and whose CEO Eddie Lampert owns a 45% stake in part via his hedge fund, ESL Investments.

The earnings report was relentlessly bad. In Q1 ended April 29, revenue plunged 15% year-over-year to C$505 million and gross margin dropped 5.6 percentage points to 22.6% as everything spiral down in the wrong direction.

It blamed “increased clearance activity in the stores,” along with “increased brand exits, merchandise receipt delays, and store remodels,” as well as massive discounts to get the stuff out the door.

It booked a net loss for the quarter of C$144 million, or C$1.42 per nearly worthless share, up from a net loss of C$63.6 million a year ago.

Then the report explained how, why, and when it would run of money. Sears Canada had C$164.4 million in cash at the end of the quarter, down from C$235.8 million at the end of Q4. This includes C$125 million “(before transaction fees)” in borrowed money and C$57 million it received from the sale of real estate that closed in the quarter.




On June 5, it drew $33 million, thus “effectively” maxing out its revolving credit line. And then it uttered the fatal words:

[T]he ability of the Company to continue as a going concern is dependent on the Company’s ability to obtain additional sources of liquidity in order to implement its business plan. Based on management’s current assessment, cash and forecasted cash flows from operations are not expected to be sufficient to meet obligations coming due over the next 12 months.

In order to address the need for additional liquidity, the Company had expected to be able to borrow up to an additional $175 million (before transaction fees) secured against its owned and leased real estate as part of the second tranche of its existing term loan. Based on the current status of negotiations with the lenders, the amount that the Company expects to borrow under the second tranche has been reduced to an amount up to $109 million (before transaction fees).

That, and the lack of available alternative sources of liquidity (through real estate monetizations, asset sales or otherwise), which may not be available in a timely manner, mean there are material uncertainties as to the Company’s ability to continue to satisfy its obligations and implement its business plan in the ordinary course. Accordingly, such conditions raise significant doubt as to the Company’s ability to continue as a going concern.

The lender of the C$109 million is private-equity firm KKR. Worried about throwing good money after bad? Now Sears Canada is looking at “strategic alternatives” that “may include a financial restructuring.” And “to assist the Company with this process,” it has hired BMO Capital Markets, as a financial advisor, and Osler, Hoskin & Harcourt LLP, as a “legal advisor.”

Osler’s Insolvency & Restructuring Group is “Canada’s leading multi-disciplinary practice offering top-tier legal expertise in all aspects required to resolve the most compelling business challenges,” as the law firm says. It already represents Target Canada in its insolvency proceedings commenced in 2015 when it shuttered its 133 stores and 7 more locations it hadn’t even occupied.

“In light of these developments,” Sears Canada canceled its annual meeting that was scheduled for tomorrow. And “as a result,” Jeff Stollenwerck, a SVP at Sears Holdings, “has resigned as a director effective today.”

This is what a meltdown looks like. Sears Canada operates 95 department stores, 29 Sears Home stores, 71 Hometown stores, 16 Outlet stores, 69 Sears Travel offices, and 32 Corbeil appliance stores.

“It’s going to be quite a show if this ends up in a bankruptcy,” Alan Marcovitz, president of mall landlord Westcliff Group, told the Globe and Mail. The firm sits on seven Sears leases.

So which Sears is going to pull the ripcord first? Sears Holdings in the US had warned in March that it had “substantial doubt” it would be able to “continue as a going concern” as it might not be able to cover its obligations over the next 12 months. It blamed a recent accounting rule that forced it to make this disclosure, and that it didn’t reflect management’s views.

But its ingenious strategy of cost-cutting and store-closing its way out of trouble is on track to lead to zero. Read… Sears Revenues Plunge, to Hit Zero in 3 Years, Shares Jump




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  51 comments for “Sears Canada Hires Bankruptcy Advisory Firm

  1. David
    Jun 13, 2017 at 9:32 pm

    I purchased a Die-hard battery for my motorcycle yesterday from Sears. It came with a 9 month warranty. The bike started today so I’m pleased. You think they’ll be around to back the warranty in March 2018?

    • Suzie Alcatrez
      Jun 13, 2017 at 9:39 pm

      Possibly, Sears is selling Diehard, maybe Amazon will buy them?

    • Jun 13, 2017 at 10:42 pm

      The warranty is probably pro-rata. After six months, the reimbursement might only be 1/3 of the cost. So really it’s the next four of five months I’d be worried about.

    • Meme Imfurst
      Jun 14, 2017 at 6:23 am

      Sears local will not replace my $250.00 tire with 10% of the warranty used, resorting to lying and stonewalling the replacement. Multiple complaints filed and nothing.

      So I sent a registered a letter to Brian Kaner, President of Sears Auto Centers hoping that HE would be concerned enough to do something. Nope, not even the guy at the top cares about the customer, in the case of a tire losing the tread, the customer’s safety doesn’t matter either.

      If management doesn’t care about keeping a customer, the whole show is a sham.

      Sears deserves to die, management made that happen but they will move on to other companies to destroy.

      • Frederick
        Jun 14, 2017 at 6:54 am

        Meme they sold me a crappy lemon of a refrigerator back in 2012 Never worked right They came out and changed the compressor and still didn’t work right I ended up replacing it from a local appliance place at my cost 600 dollar total loss Used it a month

        • TJ Martin
          Jun 14, 2017 at 8:32 am

          Sears customer service and the quality of their products has been going downhill since the 90’s getting worse by the year . Quite a (down) turn around considering back in the day their very success and reputation was built on quality products for a reasonable ( not bargain basement ) price with excellent customer service . Part of the blame though must fall upon the consumer as they began preferring ‘ bargain ‘ over quality not realizing they cannot have both .

          As for Meme’s comment about management not caring about the customer . No insult intended Meme but get a grip . The ONLY thing management across the board and all genres has cared about since the late 80’s early 90’s is keeping their investors and board happy . With the customer no longer being so much as an afterthought .. never mind a consideration

        • Kent
          Jun 14, 2017 at 9:17 am

          @TJ,

          Agreed. IMHO, this is a result of tax and regulatory changes in the ’80’s that let PE firms become hugely profitable. PE firms just want to strip and flip. They have no idea how to actually run a company that produces anything of value for customers.

        • walter map
          Jun 14, 2017 at 9:29 am

          TJ: “The ONLY thing management across the board and all genres has cared about since the late 80’s early 90’s is keeping their investors and board happy . With the customer no longer being so much as an afterthought .. never mind a consideration”

          Quite right. What the hell do they need customers for when they can pillage the firm and do stock buybacks?

          It’s that “maximize shareholder value” thing they bought into in the 1980s. Everything else, including consideration for the host they parasitize, has been deep-sixed at Wall Sts. insistence.

          Wall St., as we know, has the morals of a famished barracuda. The FIC rejects the concept of social responsibility and has weaseled the courts and legislatures into making it practically illegal: CEOs can be ousted for failure to game the system and unwillingness to screw customers, vendors, and investors alike.

          They have corrupted governments at all levels into becoming their proxies, leaving only the merest pretence of what remains of ‘democracy’: since they pick the candidates, they could care less who you vote for.

          And soon enough they will dispense with the pretences.

      • Petunia
        Jun 14, 2017 at 9:31 am

        I bought Goodyear tires almost 3 years ago and they still fix my flats for free. AAA replaced my under warranty battery after 18 months of use. The exploding washer machine company just fixed my out of warranty dryer for free. So some companies still do a good job and take responsibility for their products.

        • Kent
          Jun 14, 2017 at 11:22 am

          I bought a Maytag fridge 4 years ago. It is actually made in America and I remembered the old bored Maytag repairman. The fridge had 3 flaws within the first year. Guys came out to fix it for free each time (warranty). Since then it has been trouble free.

          Maytag keeps sending me a contract to sign up for $75 annual warranty repair. My assumption is that they purposely make the machines poorly because they will get a lot of profit from suckers buying up those extended service contracts.

        • Bee
          Jun 14, 2017 at 12:27 pm

          Kent—Maytag has been owned by Whirlpool since 2006. They used to be an Iowa company—no more. Gone is the Maytag dependability from days gone by. It’s only marketing now.
          They might be “made” in America, but I suspect (though I haven’t researched) it’s like the “made in America” autos made mostly from Chinese/Korean/Mexican parts.

        • d
          Jun 14, 2017 at 3:24 pm

          ” it’s like the “made in America” autos made mostly from Chinese/Korean/Mexican parts.”

          If the parts are made in those places and the car is then “ASSEMBELD ” in America its.

          American assembled NOT. American made.

          Holley got Hammered over this when it moved much of its parts manufacture to Taiwan in the late 60’s.

          They had to put Assembled in American with some parts made in Taiwan stickers on all the Carburetor’s for years. Now nobody bothers about these. Made in, America, England, Australia, Germany, Lies.

        • TJ Martin
          Jun 15, 2017 at 9:19 am

          For every rule there is the exception as Meme Imfurst’s last 6/14 5:40 comment shows .

        • TJ Martin
          Jun 15, 2017 at 9:28 am

          d – Remember as recently as 2011 when all new cars had to have a sheet posted on the window showing the content sources ?

          Suffice it to say that sheet played a major role in dissuading me from purchasing the Volvo XC I was considering . Not one single system or part on it was Swedish . Whereas the comparable Mercedes we wound up buying was 80% + … German

        • d
          Jun 15, 2017 at 4:38 pm

          “d – Remember as recently as 2011 when all new cars had to have a sheet posted on the window showing the content sources ?”

          Different country’s, different rules, we need to go back to rules where all goods show CLEARLY which country’s they came from and where the components in then came from.

          As for food.

          We need to Know, where it came from, if it was organically produced or not, exactly what is in it clearly labeled. If it contains ANY GM product it should say so.

          Not packed in (Where Ever) for (Who Ever).

          If Food dosent clearly state, where it came from. I WILL NOT buy it.

      • shhhhh
        Jun 14, 2017 at 2:41 pm

        Hope it makes you feel better that I knew someone that disconnected the speedometer back in the 90’s and was able to return the tires that “wore out prematurely” for brand new replacements at zero pocket after major cross country fun.

      • Meme Imfurst
        Jun 14, 2017 at 5:40 pm

        Well folks….I got a reply from the presidents rep, and my tires will be replaced tomorrow mourning!

        Now, this is the ‘district manager’ who should have responded to the 4 filed complaints two and three weeks earlier, but he didn’t. I asked him,” are you responding because of the 4 complaints I made or the letter to the president?”. Both he said, so without that letter he may have ignored the complaint forever.

        I don’t take crap, and I don’t like getting taken advantaged of, so fight, write that letter so the top management knows.

  2. chip javert
    Jun 13, 2017 at 10:36 pm

    Sears needs to borrow from “more flexible” banks, say, like ones in Italy & Spain, where “repayment” is a concept, not an obligation.

    • Wilbur58
      Jun 14, 2017 at 3:05 am

      Well personally, I’m a mutli-billionaire who could lend to Sears. But I just have this liquidity thing going on.

    • Valuationguy
      Jun 14, 2017 at 7:57 am

      Sears just needs to ‘survive’ for less than one more month…..which has been the underlying goal of Lampert for the past 18 months as its financial condition deteriorated and a bankruptcy filing became INEVITABLE.

      He HAS to get past the five-year look-back period the bankruptcy court can legally use to claw-back the self-dealing transactions (i.e. the real estate deal he structured with a closely related entity and closed in July 2012) or the Bankruptcy Court can go back and potentially fine him and his hedge fund for the resulting damages (assuming its proven that the deal inevitably lead to the bankruptcy due to leaving the Sears so highly leveraged that a collapse was inevitable).

      • Petunia
        Jun 14, 2017 at 9:39 am

        I guess this means if I rob you and manage to hold on to the loot for 5 years I can keep it.

        • d
          Jun 14, 2017 at 3:14 pm

          “I guess this means if I rob you and manage to hold on to the loot for 5 years I can keep it.”

          Safest way to own a Rob Bank. OWN it.

          In America the law allows PE Asset strippers to do this.

          The American Asset stripping Corporates, practiced this in England and Europe in the 60’s and early 70’s, they tuned it.

          As they became Further Globalised. With Loyalty only to their profits, they Started on America.

          The time frames for claw-back actions are far to short, when it can be shown an earlier transaction benefited only a small group to the long-term detriment of the Entity.

          The root of this problem lies in congress.

          But Hey.

          Your buddie and his Crony’s are running that. So dont expect any change to the laws that allow this or even any verbal questions from congress for the next 3 to 7 or more years. About this sort of Corporate Fraud.

        • walter map
          Jun 15, 2017 at 12:07 pm

          Strip and flip: the financial equivalent of bleeding a body, harvesting the organs, and keeping it alive with stock buybacks until it’s dumped in the woods.

          It’s not just corporations. They do this with public schools, road systems, cities, states, whole countries.

          Gorging only makes them that much more ravenous.

          Listen, and understand. That Terminator is out there. It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear! And it absolutely will not stop, ever, until you are dead.

  3. Bobby
    Jun 13, 2017 at 10:49 pm

    Most of Sears Canada grade A assets were sold off years ago by the parent company Sears Holdings, leaving a little left with second class malls. Any past profits made were spun off as special dividends, not re-invested. This was bound to eventually happen..

  4. Wilbur58
    Jun 14, 2017 at 3:04 am

    God I love this phrase “liquidity problem”.

    “Thanks for the wonderful meal. I look forward to paying you too, once I get past this liquidity thing I’m going through.”

    “You can’t raise rent on me. I don’t have the liquidity!”

    “Baby, I’d love to take you out tonight, but I just have a liquidity thing. No no… it’s not a drinking problem or a deviant something or other… it’s just, liquidity.”

    Says the plumber, “I get my liquidity… from liquidity.”

    “So, what’s the estimate for my roof?”
    “About $15K.”
    “Ouch, I don’t know. I sorta have this liquidity thing going on.”
    “Well yeah, I thought that’s what you wanted to get fixed.”
    “Uh, right. Do you think you get help me with my liquidity and fix my roof?”
    “Um, wouldn’t fixing your roof solve the ‘liquidity’?”
    “Forget it. I’m sorry for taking your time.”

    Can anyone else think of some good ones?

    • Ricardo
      Jun 14, 2017 at 5:33 am

      That’s what alcoholics say….it was the liquid…..ity

    • walter map
      Jun 14, 2017 at 6:46 am

      Liquidity. When Wall St. starts burning down, that’s what you use to put out the fire. Fireman: “More liquidity! More liquidity!”

      Liquidity. That’s when you look at your investments and wet your pants.

      What’s the capital of Spain? About €18.

      Oh, you said good jokes.

      • Ishkabibble
        Jun 14, 2017 at 11:38 am

        Excellent!

    • Dennis
      Jun 14, 2017 at 2:08 pm

      Wilbur: You’re a poet and a comedian. Good stuff.

      How about: “My liquidity increases after 5PM.”

      “Becomes a problem about 4AM.”

  5. Matt
    Jun 14, 2017 at 4:06 am

    What people are NOT talking about. Malls and the Mortgage Backed Secured loans that go with them. General growth Properties, Simon Properties are being devastated along with lesser to a point PREIT in the Northeast, Mid Atlantic Region by the retail grim reaper. As dozens of these chains close stores and files chapter 7, 11 or just close stores, these malls lose income and the mall owners lose money. many are re negotiating leases with terms as short as 6 months now just to fill stores. Many at half the price psf as they would have normally charged. yet many strip malls where I live in Baltimore co near the I 95 Rout 43 area remain void of stores and sit empty as supermarkets and many other chain stores have been closing in the past year. In Harford Co the Harford mall is slowly dying. When Sears goes along with Macy’s the mall will be very much on life support. Several chain stores have already been closed due to Bankruptcy. Same thing along with the Whitemarsh mall just a mile from where I live now

  6. Dave
    Jun 14, 2017 at 4:43 am

    I live in Central Bucks county PA in a rather well off suburban area that borders Doylestown and further north New Hope (lots of money there). Right before/during the Great Recession we had a new walkable outdoor mix use retail area developed, nice layout, lots of open space and upscale tenants. This is on the main road with lots of traffic.

    During the downturn quite a few stores went belly up and to this day there are still empty stores that were never active after the first tenant shut down. Borders was the biggest hole as it was an anchor store square in the middle, with big open spaces in front for sitting outside. To this day that anchor remains empty and unused…… a decade of loss.

    The most recent spot to shut down was Carmel Kitchen, opened in summer 2014, closed in spring 2017

    • Petunia
      Jun 14, 2017 at 9:51 am

      I love Bucks County, New Hope, and Phili. They had the best shopping and restaurants of any place I have ever been. I still miss Chef Tell’s place on the Delaware. I’m sad to hear those areas are in decline.

      How’s Manayunk doing? I read Phili Magazine once in a while and can’t believe the real estate prices in the downtown, unbelievable.

  7. Paulette
    Jun 14, 2017 at 6:47 am

    Although I do not profess expertise in any analytical sense,… from a
    cursory look, it appears like N.A. retail, in the absence of the
    ” growth magic trick” economic models, is proceeding down Maslow’s
    hierarchy of needs and wants, and is now on the last rung, and from
    there,…on to financial implosion.
    The shelter portion is blowing up all over the world, along with
    clothing [ the latest being Sears], and onto food, wherein the
    international players are starting to eat their young, and very soon,
    I expect cartels in ” water and air ” control, with portioning out
    these last two , by corporations, for profit.

    • Kent
      Jun 14, 2017 at 9:27 am

      If you look at President Trump’s infrastructure plan, that is exactly what he wants to do. He wants local government (which I work for) to sell of water utility assets to private companies and use the revenue to build other types of infrastructure (roads and bridges). We are already being approached by some of these interests.

  8. Frederick
    Jun 14, 2017 at 8:05 am

    Wolf is indeed a politically correct fellow I’ve got to hand it to him Very much like his German countrymen actually

    • Jun 14, 2017 at 10:58 am

      You said you’re married (happily) to a Turkish woman. I’m married (happily) to a Japanese woman. Interracial marriage was illegal in many US states until a Supreme Court decision exactly 50 years ago. It was illegal in the state where I went to high school. Neither you nor I should have any patience with nonsense about people who look different or who believe different things.

      • Frederick
        Jun 14, 2017 at 11:13 am

        You are certainly entitled to your opinion as I am mine but I respectfully disagree with your analogy but you do live in San Francisco so I should have expected such a response

      • d
        Jun 14, 2017 at 3:17 pm

        √+

  9. Nicko2
    Jun 14, 2017 at 8:44 am

    Personal debt in Canada is average of $1.68 for every earned $1. Consumers are tapped out. Besides, who shops at Sears anymore?

  10. Smallbizowner
    Jun 14, 2017 at 9:48 am

    Amazon does not pay sales tax. Their net profit is 2-3%. The taxes they avoid are 5-9%. Their whole business model is tax evasion.
    Sears would be full of customers if they got tax breaks twice the size of their net profit and had zero staff for customer service.

    • Jun 14, 2017 at 10:50 am

      Amazon pays sales taxes in many states in the US, including the largest ones, CA, TX, NY. It might by now be paying sales taxes in all states that have them (I haven’t checked recently). It lost that battle a few years ago.

      • Bee
        Jun 14, 2017 at 12:32 pm

        Amazon pays sales tax, or its customers pay sales tax? Amazon now collects sales tax because “we want an even playing field”—23 years late!!!!!!!!!!

        • Jun 14, 2017 at 12:58 pm

          Amazon collects sales taxes from its customers and pays those sales taxes to the states.

  11. PK
    Jun 14, 2017 at 9:51 am

    The Feds should raid their HQ and demand payment of back taxes. That would give B&M a boost and serve as a warning to Uber, Lyft, Alibaba, and the rest of the internet pirates. Shut em down.

  12. Pavel
    Jun 14, 2017 at 9:56 am

    I’m old enough (alas!) to remember the Sear’s catalogue that my mother used to get — did it come 4 times a year? I used to browse through it as a kid. Each one was about 300 pages I guess. They were the Amazon of that era (this was the 1960s).

    • Kent
      Jun 14, 2017 at 11:28 am

      Yup. I was a little kid in the late ’60’s early ’70’s. Mom would sit my brother and I down around Thanksgiving and let us pick out 2 items each from the toy section. Found out later that Dad would rip out the pages of expensive toys. :(

    • DH
      Jun 14, 2017 at 8:55 pm

      I remember the same from Sears and JC Pennys in the 80s.

  13. Ishkabibble
    Jun 14, 2017 at 11:47 am

    Don’t worry. All of the former Sears employees will get great jobs at Amazon, Walmart and McDonald’s………………………….unless https://www.forbes.com/sites/realspin/2016/11/29/thanks-to-fight-for-15-minimum-wage-mcdonalds-unveils-job-replacing-self-service-kiosks-nationwide/#7a3edf6a4fbc

  14. Simplyput7
    Jun 14, 2017 at 1:08 pm

    Sears in Canada makes cheap looking, expensive clothes that only women 60+ plus would wear. The best sales from them come from their online site.

    We have had a many brick and mortar stores close over the last 5 years in Canada. Many refused to open online stores and when they did it was too late. Target Canada didn’t provide the selection of items that we could get in the US. Many Canadians still went cross-boarder shopping to a US Target store instead of shopping at a Target store in Canada.

    With online shopping, online flyers and mobile flyer/deal apps, it’s easier to be picky. Once you start to know your prices, you don’t have to visit a brick and mortar store to get great prices on items, just wait for a sale. If you live in a large enough city, free shipping for online purchases takes 1 or 2 days to get to your home or preferred drop-off location. Returns are also free and can be sent by mail or returned to the nearest store for a refund or store credit.

    I’m surprised Sears Canada survived this long. I hope they didn’t a pension plan, it could get messy if their pension plan was underfunded.

  15. Jeremy
    Jun 14, 2017 at 7:00 pm

    They tried to hire me for a fairly senior role early this year.

    I said no thanks.

    Recruiter started giving me a hard sell.

    I sent him a bunch of links about the state of their financials.

    Dude had his fingers in his ears or something. Just wouldn’t hear it.

    I said I’d be happy to come on board at a “C” level, because that way I might stand a chance of actually fixing something, and because the lower level folks don’t get golden parachutes (or job security of any kind, these days).

    Didn’t hear back from him.

  16. Kevin Beck
    Jun 17, 2017 at 8:23 pm

    Sears is living (or dying) proof that when you pair a good manager with a bad…Wait: Eddie Lampert isn’t anywhere close to a good manager. He has become a greasy charlatan trying to slip out of the bankruptcy with the company’s best assets going to him.

    He keeps putting up more money himself, along with his partner in greasy actions, Bruce Berkowitz, so that they can have the lead of the creditors’ committee when the lawnmower runs over the manure.

    He obviously doesn’t have a strategy to operate the business. That’s why the business is heading to the dumpster. And just like any politician, I wouldn’t put him in charge of running a lemonade stand; he’ll just find a way to trade its assets for worthless IOU’s, and get paid in cash to take the trade. And guess where the cash ends up?

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