Sears Holdings Exhausts its Last Credit Facility

It risks running out of money just before the holiday selling season.

It took less than a month. Sears Holdings disclosed on Monday in an 8-K filing with the SEC that it drew down the remaining portion, $60 million, of its $200 million credit facility that it had obtained on October 4.

Sears has been bleeding cash. In the last quarter, it lost $251 million. In fiscal 2016, it lost $2.2 billion. In fiscal 2015, it lost $1.3 billion. Over the past six years, it lost $11 billion. Its sales have recently been plunging at a rate of nearly 25% year-over-year. It’s on track to close nearly 300 stores this year, on top of the hundreds of stores it already closed in prior years. Suppliers are very nervous. And key relationships, such as the one between Sears and Whirlpool, have fractured.

Now the holiday selling season is coming up, and this requires loads of cash well in advance, especially with trade credit getting tighter because suppliers don’t want to be hung out to dry. Advertising and promotions are costly. If the money runs out before the absolutely crucial holiday selling season, it’s over for shareholders, and creditors will take control.

So Sears Holdings obtained a $200 million credit facility on October 4 through the expansion of an existing credit facility, and drew $100 million right away. On October 18, Sears drew an additional $40 million. On October 25, Sears drew the remaining $60 million, according to the filing.

Also on October 25, the loan terms were further amended “to add a cross-default provision and make certain other changes,” the filing said.

The administrative agent for the loan is JPP II, LLC, which is controlled by ESL Investments, which is the hedge fund of Sears Holdings CEO Eddie Lampert. ESL is the lender. Lampert is on both sides of the deal, representing Sears Holdings stockholders on one side and his own hedge fund on the other.

The $200 million loan has an annual interest rate of 11%. But more important are the real-estate aspects of the loan agreement:

All of the loans under the Second Amended and Restated Loan Agreement are guaranteed by the Company and secured by a first lien on 76 real properties. The $200 million loan is also secured by a second lien on 16 real properties owned by the Borrowers.”

This loan may be the final step with which Lampert and his hedge fund are positioning themselves to cement their control, when the default comes, over the real estate that isn’t already in the clutches of the creditors or hadn’t been transferred to Seritage, which was spun off via a rights offering from Sears Holdings in July 2015. Lampert is chairman of Seritage. Aggrieved investors that had sued Lampert and Sears Holdings claimed that Seritage is also controlled by Lampert. Earlier this year, Sears Holdings and Lampert agreed to settle the suit for $40 million.

But $60 million is a smallish amount – peanuts, really – compared to how much cash Sears burns through in a month, given that it lost $251 million in the quarter and $2.2 billion last year as sales are plunging at an annual rate of nearly 25%. The $100 million borrowed on October 4 and the $40 million borrowed on October 18 are already gone. The $60 million borrowed on October 25 are not going to last long either at the rate at which Sears is burning cash.

And the fate of the formerly iconic retailer, once the largest in America, is now boiling down to the basic question whether it will make it through the holiday selling season and collapse shortly afterwards, or whether, like Toys ‘R’ Us, it won’t even make it that far.

Two weeks ago, the fourth director in 10 months quit Sears’ board. Read…  Why Did Sears Holdings’ Largest Outside Shareholder Suddenly Jump Overboard?

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  49 comments for “Sears Holdings Exhausts its Last Credit Facility

  1. AGXIIK says:

    This Sears Seritage clusterbungle has been a slow motion bank robbery for 10 years. A slime coated hagfish, the most disgusting bottom feeding predator, could be awarded citizen of the year when compared to Eddie Lamprey.

    Eddie gives a bad name to 4,000,000 years of human evolution.
    My hope is that the over 100,000 Sears employees in Canada and the US, flushed by this piece of evolutionary flotsam, toss their money into a slush fund and use it to track down this POS.
    Once found, the employees should all get to carve a little piece of Eddie using a pickle fork.

  2. AGXIIK says:

    This Sears Seritage clusterbungle has been a slow motion bank robbery for 10 years. A slime coated hagfish, the most disgusting bottom feeding predator imaginable, could be awarded citizen of the year when compared to Eddie Lamprey.

    Eddie gives a bad name to 4,000,000 years of human evolution.

    My hope is that the over 100,000 Sears employees in Canada and the US, flushed by this piece of evolutionary flotsam, toss their money into a slush fund and use it to track down this POS.

  3. Suzie Alcatrez says:

    I doubt Sears will survive past January 1st.

    • mvojy says:

      Maybe they will if they establish a “No Returns” policy effective at midnight 1/1/2018

  4. bkennedy says:

    Just as ugly to watch on the US side.

  5. Thunderstruck says:

    “Sears Holdings Exhausts its Last Credit Facility ”

    Maybe they should apply for a Sears Card.

    Too bad they spun off the Discover Card all those years ago. They could’ve gotten one of those too.

    • Steve says:

      A Sears card won t do them any good…the revolving charges will eat them up….lol

  6. Jeremy says:

    Looked at their 2016 annual report (it’s probably changed a lot since then, but gives the flavor). Page 60 gives the breakdown of assets vs liabilities. Total assets of $9.3b vs $13.1b in liabilities.

    However, if they declare bankruptcy, leave vendors and pensioners holding the bag, and sell off the property, they might still be able to strip a couple of billion out of the carcass (less legal fees, and settlements for a few of the more persistent debt-holders).

    130k employees. I could weep.

    • Frederick says:

      Maybe some of them can apply at the new Amazon center wherever that will be

    • MC01 says:

      I think this is the general plan and how it will go down… the only assets Sears have left are the stores themselves, at least those which haven’t gone to senior creditors already.

      But it remains to be seen if the RE market will comply. Commercial, especially retail, is in for multiple local corrections, and when RE gets auctioned off during bankruptcy procedures it’s extremely rare for it to go at full asking price. If they ride on top of the commercial RE bubble and buyers still believe this is 2005 they may get $1.4 billion before paying off legal fees and settling with the most determined creditors.

      Of course this is assuming their RE assets are still at 2016 levels and they haven’t lost more valuable property to creditors wishing to recoup part of their losses before the bankruptcy court gets involved.

      • stitch says:

        The bricks and the mortar are both the last hope and defining failure.
        The trend of Brick and Mortar businesses becoming obsolete is one
        seen by managements like Sears years ago.
        I would not put it past those in Sears Corp. management to see the trend long ago and fleece the dying carcass as much as possible.
        For the upper management, there more then likely will be another ‘mark’ corporation for parasiting to death in the form of another executive position, but for the 130k people
        who will loose their livelihoods, options seem much more constricted and limited for bouncing back…

      • Suzie Alcatrez says:

        All the best Sears properties were spun off to Seritage several years ago.

        • MC01 says:

          Sears had huge RE holdings built up over the decades. Even as parts of it were spun off to Seritage (leading to a lawsuit which Lampert had to settle to the tune of several dozens millions) and others pledged to senior creditors there’s still a lot left.

          Yes, a lot of what is left is not exactly prime property in the heart of prime markets, but remember RE is still massively overheated. Credit is still pouring into it at historically low interest rates and banks are still more than willing to lend to hare-brained RE schemes. I’ve learned of one just today.

          I am honestly surprised Wall Street hasn’t jumped on the RE requalification wagon yet: with residential housing pricing completely out of control, a massive oversupply of commercial, especially retail, and local governments desperate for revenues it would be a natural development to buy a failed mall, raze it to the ground and build houses instead.

      • Rocketman says:

        Selling of its RE assets when malls all over the county are closing do to lack of business? Yea, good luck with THAT plan.

  7. Kent says:

    If revenues are plunging, it would be interesting to know how inventory purchases have changed as a percentage of overall expenses. If that percentage is declining, it would indicate Eddie is still making money for himself through rent charges, management fees and other shenanigans.

    I love unleashing the private sector with deregulation!

    • Michael Fiorillo says:

      It’s the Magic of the Marketplace at work!

    • Bobby Dale says:

      This has nothing to do with “de”regulation. Which regulation in the US was removed to allow this behavior? Did Sears receive cash from regulated banks? As best I can tell he lent his own money via ESL to Sears.
      Will he make money on the deal? Or get his cash back from selling commercial real estate as that market is crashing?
      Were his intentions always to strip the assets of Sears and dump it on employees,creditors and shareholders?
      Or did he believe he could save a marquee name from its death spiral?
      Could Jeff Bezos have saved Sears if he had taken over in 2004? (probably yes, with a lot of investment from Amazon)
      Would you accept regulations telling you how to manage your assets?
      I understand this is a royal screwjob to the employees and retirees, but Sears was failing since the 80’s, it just took 30 years to die.
      I do not like the way this was done but I can not pass judgement on Lampert, even if he is lower than a slime coated hagfish.
      Maybe he is JUST INCOMPETENT at running a retail operation or failed to see the oncoming train of the internet sales.
      Look in the mirror and ask yourself…would I in 2005 have bet the farm on the “retail apocalypse” of 2017? Did I in 2005 even foresee the 2008 meltdown of the markets?

      • Michael Fiorillo says:

        It’s the lack of regulation of private equity companies, and finance in general, which are allowed to purchase a company with excess debt, assign that debt to the target company, strip assets, gorge on fees and special dividends, and then leave a rotting carcass behind.

        Could Sears have survived if Lampert had not extracted every last cent? Who knows, but even I, a non-professional, could see what was coming when he bought the company. Brick and mortar retail apocalypse or not, Sears’ fate was sealed when Lampert bought it.

        Like Tony Soprano says when asked by David Scatini – the hapless, degenerate gambler whose sporting goods store Tony takes over and strips bare – why he did that to him, a former schoolmate, Soprano replies, “It’s the frog and the scorpion.”

        It’s time to protect the rest of us from the scorpions.

      • Frederick says:

        Bobby A lot of ordinary people did see the housing/ subprime bubble brewing in 2005 I know my partners at the time in a real estate development project did CLEARLY in fact but they were depression era/ older with the wisdom that gave them

  8. TheDona says:

    This was Eddie’s plan all along. He pulled the long con. He is not a retailer, he is a money guy and Sears/Kmart was ripe for the picking. When a retailer has more RE value than it’s core business this is what happens.

    Next up for the long con is Hudson Bay owned by NRDC Equity Partners.

  9. mvojy says:

    Eddie is going to turn former Sears and Kmart stores into mixed use properties. Small storefronts on the ground floor and rental apartments above. Our middle class will be slaving away to live in a little box rental above a Starbucks that they can’t afford to frequent themselves.

  10. Paulo says:

    Tip for readers:

    When Target went out of business in Canada they had some ‘supposedly’ hot sales. They were not. But, the shelves slowly emptied. First is was 20% off, then 40%, and at the end, a ‘final’. (I checked it out just one time. Honest). It was pretty depressing.

    Here is the tip!! Before the dust settles, any homeowner or someone with a shop should absolutely cruise behind the stores and check out the compounds where the dumpsters are. Do it on a regular basis. Target tossed out some excellent commercial grade shelving, light fixtures, steel supports, etc. Think of all the fixtures a large department store carries. It is very significant, and worth thousands. There is no one to sell this stuff to as there is limited market for it and how do you store it and dispurse, anyway?

    I would imagine the goods not sold were also tossed, but I was looking for shop stuff.

    Their merchandise might be crap, the owners are certainly heartless, but the fixtures and supplies are insurance/lawsuit mandated and 1st class.

    This is dumpster diving at the highest level. Good luck!! Enjoy. It’s good practice for Mad Max lifestyles. :-)

    • Check with your local constable first, you may not have the legal right to any of that stuff. It’s like trolling your neighbors recycle bins for CRV on trash pickup day, you can’t do it.

    • mean chicken says:

      Good point, might be able to get some nice commercial quality shelving for the shop/garage, maybe even a glass front refrigerator or something.

      Wish I could find an nice 60’s aluminum Christmas tree somewhere.

    • mvojy says:

      Garbage on private property to be picked up by a private hauler is STILL private property. One can be jailed for stealing privately owned trash and trespassing.

  11. AGXIIK says:

    Another disgusting part of this scam is that Lamprey’s holding company made the loan to Sears as 11% and then took the crown jewel real estate assets, nearly 100 pieces of real estate, as collateral, using ESL as the first lien lender.

    So he loans Sears funds that he looted from Sears, putting himself as first lien lende. When his holding company that owns Sears files bankruptcy, he’ll swoop in as a superior lien lender, foreclosing on his affiliated company. All junior lien holders will be unpaid. The Sear employee pension plan will probably be looted as well.
    Lamprey becomes Lenin’s poster child of the saying that capitalists wil sell the rope to hang them
    Lamprey sold Sears management from the own hardware department. They went and hung themselves. Lamprey foreclosed on Sears and repossessed the rope used for the dirty deed

  12. OutLookingIn says:

    Dead Man Walking.

    That’s what Sears has become for some time now.
    It just refuses to lay down.

  13. Petunia says:

    It’s fitting that Sears demise is coinciding with the collapse of commercial real estate. Nobody is going to pay for a Sears location because those locations have been degraded by Lampert’s bad management.

    • California Bob says:

      There is (was?) a large Sears in a mall right across the 280 freeway from the new Apple HQ (maybe a half-mile away from the AAPL entrance). I gotta believe that RE has significant value.

      • California Dude says:

        That Sears store at the Valco mall, across the street from Apple HQ, was closed last year with it’s last 94 employees losing their jobs. It appears Sears was just a tenant and didn’t own the RE.

  14. Old Engineer says:

    I wonder how much of the Sears property that has been pledged in collateral is in malls and worth a fraction of what it once was? Here in the southeast most Sears stores were mall anchors and most of the malls are closed or dying. As an aside, I find it interesting that the air-conditioned malls are being replaced with old style shopping centers. Wonder how much time people spend their during our 95 degree, 90% humidity summers.

  15. mean chicken says:

    Just in time for Christmas Mass Store Closings Sale..

  16. mvojy says:

    If I were a betting man, I would put my money on Kmart. lol

    • Frederick says:

      Can’t stand Kmart The service is horrible/ nonexistent and the obese people riding around on those electric shopping carts is a real turnoff for me anyway


    Sears Home Improvement Inc. interloped on my small business cliental, and that of many other small businesspersons that witnessed their market share of small business contracts dwindle due to Sears Inc. marketing & advertising campaigns. Clearly, I am very pleased to witness the final Chapter 11 filing of Sears Inc. and there is a special place in finance Hell for all of their management IMHO.

    Good riddance, Sears Inc.


  18. I bought a new battery for my lawnmower from a local Sears store this summer. It came with a 1 year warranty. I am now wondering whether I should have gotten a cheaper model with only a 6 month warranty instead!

  19. gunner says:

    This is what happens when someone who does not know how to drive is operating the bus. The CEO thought he was smarter than all the retail executives sears had. Most of them are gone. the ones remaining are yes men and will not rock the boat. They do not have enough fingers and toes to plug all the holes the CEO has drilled in the boat.

  20. Sporkfed says:

    It is predatory capitalism designed to benefit the looter class
    at the expense of the working class. The lack of regulation of the
    financial world will spread this cancer far and wide.

  21. matt says:

    if they have no money to pay vendors, leases, bills , employees I would expect them to file as soon as next week. JCP has been slaughtered also and has about zero cash on hand I would expect them to follow shortly after. UA also. Macy’s sometime next year CMBS will be the next financial crisis nobody has seen coming

  22. Martin says:

    A Retailer friend of mine just took over a vacated Sears Canada location – Wow – that property has been RUN INTO THE GROUND AND STRIPPED!!!
    Nothing works, heating air, security (stripped) – just an old burned out shell. For the last 10 years, I would go into a Sears store in Canada just to smell what a retail Morgue stink would be. Meantime – Walmart, Amazon etc thrive – Sears was sucking the winds of death for so many years…

  23. alex says:

    If it were me, announce going out of business for the upcoming holiday season. The increased traffic will help move the remaining merchandise. This has been a slow motion train wreck. Remember when lampart bought in when stock was in the dumps and the stock soared as the genius real estate play. It was obvious then that it was over, yet stock went up into the 90 buck range as i remember. Probably a big short squeeze, now the slow death. As i see it, Lampert’s plan has work just as planned.

  24. alex says:

    Say what you want about Lampert , but dude is playing a slow chess game and the checkers players are screwed.

  25. alex says:

    So lets do a classroom exercise so we can all learn? I’m not the teacher, but a student. I haven’t done any research, just my memory of the events as i loosely followed it. 1. Sears stock shit. 2. Lampert buys in, touts as real estate play. 3. stock soars – some where along the way i quit following it 4. stock shit, death spiral.

    How did lampert profit all along this decade long trip? That’s class. I think i have allot of the answers but i’d like group think. Because i think, this was mostly planned with only a audible or two called.

    Here’s what i think. 1. Bought in at a low, via put selling and call buying,which covered most of the cost. 2. Overall, his thinking is the real estate is worth more than the company, stock goes to 90+. 3.He figures out he bought a terd. 4. Strip mining time. Spin out RE and encumber RE with loans from you and employ options to profit from the slow death spiral while getting more RE via loans. Meanwhile, the company repays principle plus interest. The slower the death, the better.

  26. Eric says:

    Here’s an interesting investment idea: I intend to get my hands on as many copies of the “Sears Wish Book”, their latest, and most likely last version of the old iconic holiday Sears catalog. They should appreciate in value just as those Zimbabwe 100 trillion dollar bank notes did. I bought just two of those and should have got my hands on a few hundred of them. Perhaps I should also buy 10 shares of Sears Holdings common stock (SHLD) and instruct my broker to send me ten stock certificates each for one share. I would frame them and hang them on a wall or two in my home and give a few of them to my kids. And sell the rest for a tidy profit. I understand that there is a lively market for old corporate memorabilia.

  27. chris Hauser says:

    they ran off their customers, including me.

    might be some sales soon, though.

    but what do you do with a dead in the water single story sears in a beat down strip in a place where no one can buy much? raise crickets.

Comments are closed.