Dead Meat Walking: Why Sears Will Be Liquidated

Bankruptcy can only restructure debts; it cannot revive mutilated brands and bring back mauled customers.

This follows the script of the brick-and-mortar meltdown of retailers that were bought by Wall Street and subsequently subjected to asset-stripping and cost-cutting, which ruined what little was left of their brands. Mired down in survival mode, those retailers failed to build a vibrant online presence and fulfillment infrastructure. As sales withered and losses ravaged the company, debts became unmanageable. But the bankruptcy by Sears Holdings is just so much richer – and the restructuring in bankruptcy has a zero chance of succeeding.

Monday morning, Sears Holdings filed for Chapter 11 bankruptcy with the intent to restructure its debts and obligations, close 142 more stores, in addition to the 46 store closings it recently announced, and in addition to the thousands of stores it closed in prior years. This would bring its store count from the 866 stores in Q2 to about 678 Sears and Kmart stores by the end of 2018. The new goal is to shrink and somehow thrive. Same as the old goals. This chart shows how Sears cut its way to health and profitability, by reducing the number of stores from nearly 4,000 in 2011 to 678 by the end of 2018:

And at this unstoppable trajectory, the store count will drop below 300 by the end of 2019 and dip into the negative by 2020 – if only that were possible.

Every wave of store closings came with corporate verbiage about transforming the company into a smaller but profitable retailer. And so inevitably, there was more of the same in today’s announcement of the bankruptcy filing.

“Over the last several years, we have worked hard to transform our business and unlock the value of our assets,” hedge-fund owner and Sears Holdings CEO Eddie Lampert said with deadpan sarcasm. He, his hedge fund ESL, and related entities are Sears Holdings’ largest shareholders and largest creditors, and what they have lent the company is secured by the company’s best assets. So the “value of our assets” that he has “unlocked” has already gone, or will go, to him and ESL.

In financial terms, the filing listed $6.9 billion in assets and $11.3 billion in liabilities. On paper, there is a hole of $4.4 billion. The size of the hole may change, depending on the magnitude of further losses and the ultimate sale price of the assets, ranging from inventories to the remaining company-owned stores.

In the announcement, Sears said that it has lined up a debtor-in-possession (DIP) loan of $300 million to fund its operations through the bankruptcy proceedings, and that it is “negotiating” an additional $300-million Junior DIP loan. Reuters reported on Sunday that according to “sources,” Lampert may participate in the DIP loan.

One of the ways for Lampert to get the real estate is to pledge it as collateral for a loan and then have the company default on the loan.

Another way is this: Sears Holding already sold 235 of its best stores for $2.7 billion in sweetheart deals to Seritage Growth Properties, when it was still a Sears entity, some of them on a lease-back basis. Seritage was then spun off from Sears via a rights offering in July 2015. Lampert is chairman of Seritage and owns a big chunk of it via the rights offering. Aggrieved investors in Sears Holdings filed suit. In 2017, Sears Holdings and Lampert settled for $40 million.

The Seritage deal is one reason the bankruptcy filing had to be dragged out so long. The two-year look-back period for “fraudulent conveyance” in the federal bankruptcy code incentivized Lampert to keep the company out of bankruptcy at least through July 2017. And state law often provides a longer look-back period. So now was apparently long enough to avoid “fraudulent conveyance” issues of the Seritage deal under state law as well.

Lampert will remain chairman of Sears Holding but will lose his role as CEO, according to the announcement. The “Office of the CEO” – a three-person committee – will assume the executive role.

Sears Holdings had about 89,000 employees in the US as of February, down from 246,000 people five years ago. The employee count will go to zero not long from now.

Sears Canada too filed for restructuring in Canadian courts in June 2017 to somehow muddle on in restructured form. By October 2017, it became clear that restructuring efforts had failed, and the Sears Canada was liquidated .

Toys “R” Us, which was owned by private equity firms, went through a similar program, filing for Chapter 11 bankruptcy in September 2017 in order to restructure its debts and go on, but those efforts failed, and in March, it was over, and Toys “R” Us was forced into liquidation.

Retailers are notoriously difficult to restructure. After years of losses – Sears Holdings has lost money since 2011, including nearly $1 billion in the first half this year – they’re burdened with debts and don’t own enough assets to cover those debts.

But in the case of Sears Holdings, it’s not just a financial problem. It’s a retail problem that is much worse than the retail problems at Toys “R” Us.

Sears Holdings has willfully killed its sales. In its Q2 loss report on September 13, Sears Holdings disclosed that revenues had plunged 26% from the same quarter last year, to $3.18 billion, continuing their seven-year astoundingly straight line to hell. The chart below shows revenues for Q2 of each year since 2011. My estimates are marked in red, based on past revenue declines:

According to Q2 data, “zero” revenues loom at the end of 2020. But it will not last that long. The show will end sooner: The bankruptcy filing will speed up the sales plunge to perhaps 40% or 50% year-over-year over the next two quarters (purple arrow in the chart above). And liquidation is likely early next year after the inevitable holiday sales fiasco.

You cannot turn around a debacle like this by restructuring its debts and closing stores. This would require an operational turnaround: branding, marketing, merchandising, sales, customer relations, employee relations, etc. Sears would have to get employees excited again about working there and consumers excited again about shopping there. But that won’t work because over the years, the company destroyed customer goodwill, surgically removed any reasons to shop at its desolate run-down stores, and mauled what was left of the brands.

I don’t give “free” advice to hedge fund managers. But if I were to give free advice to Eddie Lampert, it would sound like this: “Don’t write any more blog posts to blame pensioners for the collapse of Sears Holding after you wasted $5.8 billion on share buybacks.” Read…  My “Free” Advice for Sears Holding CEO Eddie Lampert

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  72 comments for “Dead Meat Walking: Why Sears Will Be Liquidated

  1. RD Blakeslee says:

    Suppliers are clamoring for liquidation now.

    Wonder if there’s any chance the bankruptcy court will heed them?

    • JessyS. says:

      Most likely, yes because Sears is in a world of hurt and the suppliers haven’t been getting paid.

      • nick kelly says:

        For fun I’ll bet no. With a deep legal team the move from Chap 13 to Chap 7 could be a bit of a fight.

        Suppliers not paid? All of them? Are they going to pay to move all that stuff to a warehouse to conduct their own liquidation? Maybe they can sell it where-is.

        One big supplier (creditor) will be the landlords. They won’t want even more vacant space.

        But we’ll see.

        • JessyS. says:

          Actually the landlords want Sears “out of there.” In this case, Sears is the anchor space in the mall.

        • nick kelly says:

          Sears is always an anchor. Maybe things are better where you are. The Sears here (Nanaimo, BC) an anchor at one end, has been vacant for a year. There is no market for that much space. The rest of the mall is half empty and would be better off if Sears was there paying no rent but generating SOME traffic.

          But Sears here WAS being liquidated. There was no Chap 13 type proposal, so of course the other merchants wanted it gone as it slashed prices to liquidation levels. (it wasn’t allowed to use the word ‘bankruptcy’ as it liquidated and it was court pressured to move faster)

          If the Sears down there is going Chap 7 (that is if the Chap 13 proposal is rejected) they’ll want Sears out of there. But I will bet the landlords won’t be the ones to kill the proposed reorganization.

  2. Martin L Hoffmitz says:

    I think the Canadian operation of Sears was actually doing ok until the American side of the operation came in a stripped huge capital out of the operation, in order to fund the disaster south of the border. I don’t believe that Sears Canada really had to die. That is an extra layer of SHAME on the ownership…

  3. Crysangle says:

    Slightly O/T so feel free to delete.

    In Spain Ibex traded budget supermarket Dia lost 42% today after lowering ebitda, also says its Argentine operations cost it 70 million

    Not quite the same story as Sears, more a reminder of how in practice Sp./Pt. and south America are tied, and maybe that this part of the market is stressed. Previously after gfc there was quite an effort to correct higher end retailers Corte Ingles, they moved something towards lower end on food… in fact almost all food stores advertise savings since…only the likes of Aldi don’t bother because they are already known to be less expensive.

    Just today’s anecdote from over here.

  4. G1 says:

    “This follows the scrip”


  5. Ted Freeman says:

    I have no doubt that the failure of Sears is due to “pilot error,” perhaps or probably intentionally a controlled demolition. There was nothing fundamentally wrong with their business model selling tools, appliances, shoes/clothing, tires, and car batteries prior to Lampert. It was a diversified array of goods and services that would have remained resistant to ecommerce.

    • Petunia says:

      Lampert was too clever by half, he stripped out the real estate when its value was higher than operating the stores, now neither will be worth much. He waited too long and missed the boat. Retailers of hard goods are disappearing from the landscape and don’t need his real estate.

    • nick kelly says:

      Sears predates broad but more specialized retailers. It actually predates the mall, with its plethora of clothiers.

      If you want to see appliances and tools (and wood to use them on): Home Depot
      If you want tires and batteries: Canadian Tire (at least in Canada)

      HD doesn’t sell tires and CT doesn’t sell lumber.

      Shoes and clothing have their own big outlets that don’t sell any of the above: JC., Nordstrom, at the lower end Walmart, etc. plus a bunch of smaller ones.

      I’m maybe older than you and a bit nostalgic for Sears and in Canada, the Bay, but these ‘everything’ stores are from the past.

  6. polecat says:

    So, the lamprey has to swim elsewhere to … uh .. $urvive another day .. right ?
    Wondering who/what the next victim(s) will be ..

    • Sam says:

      I agree with the author’s evaluation, it only takes a financial genius 10 + years to kill an American icon. He still got his robbed billions; I am only sorry for Sears workers and retirees, and tax payers. Btw, Sears should write off the entire loan it got from Lambert, it’s stolen from the company to begin with.

  7. SoCalTony says:

    Once again another excellent post regarding Sears in what has otherwise been vanilla reporting on this epic collapse of one of America’s top brands.

    In reading your post, this reminds me of a nature documentary where a fungus infects a host like a cricket or something and then controls the body while it feeds off of what is left of the insides until there is nothing left. I will let the readers decide what Lampert is and what Sears is in this comparison.

  8. Scott says:

    This is really a sad, sad story, especially for the employees.

    I saw a headline today that read “Abandoned by customers…” (I forget how the rest of it went). My immediate reaction was that Sears abandoned its customers to play hedge fund games, and only after that, customers abandoned the store.

  9. RepubAnon says:

    The giant leech sucked its victim dry, burped, and moved on.

  10. RBB says:

    Sears slit their own throat. Over the years I bought a few thousand dollars of tools and paint from Sears. They owned that market 40-50 years ago, but their quality kept dropping. Sears tools are junk now. Then they got rid of the older employees and hired people who did not know a hack saw from a ball-peen hammer. I tired to buy tires a few years ago (planned to buy on Sears internet and wanted to know if they would install at store). After standing in the automotive dept for 1/2 hour and never seeing an employee, I walked out. I could see down two long aisles, and never saw more than one person at a time. I am sure the hedge fund meant to strip the assets out and dump the remains back on the stock market, but their golden calf died before they could dump it. So Sears drop in quality drove their customers away, and they will not be missed.

  11. Joe Banks says:

    I have fond memories of my dad taking us to Sears in the 70s. My dad would always stop off at the candy counter and buy a bag of freshly roasted cashews. He would let us dip our hands in the bag and grab a few and share them us. Great memories.

  12. Jarhead John says:

    “Bury the dead……They stink up the joint.”

  13. Old dog says:

    You don’t have to be doctor to see that someone who starts the day drinking a liter of whiskey won’t last long. You don’t have to be an auditor to see that Lampert’s moves have fraud written all over his face.

  14. Vichy Chicago says:

    “the script of the brick-and-mortar meltdown of retailers that were bought by Wall Street and subsequently subjected to asset-stripping and cost-cutting, which ruined what little was left of their brands.”

    I think we can expand this to financial services. The Blackstone acquisition of 55% of Thomson Reuters business, now named Refinitiv, became official 2 weeks ago. The layoffs started last week. Moody’s rated the Refinitiv bond issues junk. Fund managers like Osterweis refused to participate because Blackstone rigged it that they can continue to pay themselves dividends even when failing to make debt payments.

  15. Citizen AllenM says:

    Bah, RICO him, and his ill gotten gains. Asset strip him and throw him in jail.

    That would at least allow the losers a big pound of flesh. Using the letter of the law, and flouting the intent to rip off everyone else is too destroy the very idea of a legal system and the rule of law.

    Eddie should just leave for a very long time….

  16. Gian says:

    Isn’t/wasn’t Sears too big to fail? Too bad they did not offer mortgages so the taxpayer could bail them out.

  17. Alex says:

    Sears started having problems in the early 1990’s. The model is broken and there is no way to save it. The judge should force it into Chap 7 and be done with it. Lampert probably made killing.

    • Mary White says:

      I don’t know if the Vanity Fair article is 100% correct, but it’s interesting reading. Lampert should be jailed without clothes and food until he pays what he owes retirees, employees, and everyone else with valid claims.

  18. SnotFroth says:

    I stopped shopping at Sears because there is only ever one cashier available, and checkout is always paralyzed while a slow customer contemplates how to use her reward points, signs up another loyalty card, and dredges the bottom of her purse for an elusive coupon.

    Spending 30 minutes in line in an otherwise empty store waiting to buy a pair of pants just screams “legacy retail” that failed to evolve.

    • HowNow says:

      I don’t know which marketing “genius” set that customer service model up – pitching the “loyalty” program as the company approaches bankrupcy, but it probably came from one of the big 5 business schools. I’ve noticed that when I’m greeted in a robotic manner when I enter a store, esp. when the employee is dealing with another customer, it’s a sign of distress for that retailer. It was the case at Blockbuster, Circuit City; now at Barnes & Noble, Staples, Office Depot, etc. And it dehumanizes both the employee and the customer. Is sincerity just too expensive nowadays? I was surprised, though, that at Costco, I’m looked squarely in the eyes when I”m asked, “Did you find everything you need.”

      • Dave Kunkel says:

        The last time I was at Costco, I replied to that question, “Yes I did despite your best efforts to make things difficult to find.”

        • Frank says:


        • Wolf Richter says:

          Dave Kunkel,

          LOL. I’ll borrow that line next time.

          Costco is great at that. They drive me nuts when they rearrange stuff.

          I think I’m fairly typical for a guy: I make a plan before I go, I go in and execute the plan as efficiently as possible, and get outa there as fast possible. But this is precisely what Costco LOATHES.

        • MCH says:

          Remember, the whole idea of Costco shuffling things around is that they want to make it (and this is according to some Millennials) a “treasury hunt” It adds to customer delight when they finally find the damned chocolate biscotti that they decided to bury in the seasonal section

        • Gandalf says:

          The idea behind rearranging things in a bricks and mortar store is to force you to walk through more of it so that you might buy extra stuff that you were not planning on. An alternative plan, much more customer friendly, used by Walmart, Office Depot, and Home Depot is to list their stock on their phone apps so you can find the exact aisle and shelf that the item you’re looking for is located. They place eye catching displays along the way to try to sell you the extra stuff.

  19. safe as milk says:

    i was in the sears which anchors the newport mall in jersey city recently. the place was a ghost town. i had a couple of questions about tools but there was no one to ask.

    i still bought a made in taiwan craftsman socket set. it’s actually well made. the sad part is that i researched it on amazon because the sears site is so dismal. then i plugged the part number into the sears site and got a better price. i never would have found it without amazon.

    i feel terrible for all the sears workers. they really got screwed.

    • Unamused says:

      ->i feel terrible for all the sears workers. they really got screwed.

      So did their customers and vendors. That’s the point of predatory capitalism. That was Lamprey’s goal.

      Robbery and murder of corporations is perfectly legal, but you and I don’t write the rules. The predators who do the robbing and murdering do, and they’re busily writing other rules, none of which you’re going to like, especially if you have children or grandchildren you’re fond of.

  20. Henry Fritz says:

    I know its off topic but I’m just curious how these snazzy charts are made.

    • Wolf Richter says:

      I created them using data from Sears’ quarterly SEC filings. I collect that data in a spreadsheet. I have this data for each quarter. So I can do a chart with all recent Q1 revenues for example. Or all Q2’s, etc. I just move the line over one column. It’s a breeze, once you have the data :-]

      I’m spilling all my secrets :-]

  21. Mike G says:

    Another retailer killed by the familiar story of mismanagement by five successive private equity owners over two decades, and saddled with excessive debt — Maplin Electronics in the UK.

  22. Sporkfed says:

    I heard the news on the radio today. The announcer stated
    the Sears failed in spite of Lampert putting in his own money
    Trying to keep Sears afloat. Hedge funds and the rest of Corporate America control the media to the extend that the average American has no idea what is going on.

    • Crysangle says:

      “In the case of a bankruptcy filing, Lampert’s position as a major debt holder would afford him more power than perhaps any other role he holds, due to provisions in the federal bankruptcy law that afford this group a high place in the repayment ranks.”

    • Wolf Richter says:

      Been listening to NPR again?


      NPR interviewed me for an hour a while back about PE firms’ role the Toys “R” Us bankruptcy – based on the series of articles I wrote about it. The reporter asked me by phone, and a local reporter recorded my answers with a big fancy mic right here in my global headquarters. It was quite a procedure, trying to go for perfect sound.

      But they didn’t air it. Instead they aired a PE firm insider’s take. As far as its economic, finance, and business coverage is concerned, NPR is completely in the pocket of Wall Street and Corporate America.

      But I was right, and a couple of weeks after the interview, the Senate began investigating the deal.

      • Mean Chicken says:

        ” NPR is completely in the pocket of Wall Street and Corporate America.”

        And so is MSM, thus most everything in the news (inclusive of PBS) is polluted with an agenda yet why do I hear so many repeating the narrative? I conclude they’re just following MSM and not questioning the motive(s).

        • Bad Seed says:

          Wolf based on NPR ‘contributors’ (sponsors) Wall Street and Corporate America are well represented. They’re also heavy on military contractors and Big Pharma. These industries tend to get favorable coverage more than they deserve. NPR doesn’t want to get their donors angry. They are no different than commercial networks but with annoying pledge breaks.

      • Sporkfed says:

        Guilty. Mississippi public radio has decent locally produced shows but the NPR stuff is watered down pablum.

      • Mike B says:

        I honestly think that if it wasn’t for you and Naked Capitalism shining the bright light on the cockroaches behind the Toys R Us debacle the whole sordid mess would have just ridden off into the sunset like so many other corporate thefts and mis-deeds.

        THANK YOU! Your hard work and dedication is invaluable and critically important in this age of predatory disaster capitalism.

      • Gandalf says:

        Well, just look at who donates gobs of money to NPR shows like Nova- Koch Brothers, Draper, etc. Years of having its government funding stripped by Republicans has made the Corporation for Public Broadcasting as beholden to sponsors as everything else that is on TV.
        For my business and other news, I like Bloomberg. And Science News magazine still is great for science news.

      • safe as milk says:

        i work on a national msm news program with a technical job. i don’t come from a journalism background. when i made the switch from years of work on the marketing side of things, i was struck by how little difference there is between marketing and news. when a news outlet assigns a story, they have an outcome in mind. the reason they interview people like wolf is that they want bites to support that agenda. in fairness, they really don’t have a choice. the time constraints (everything controversial has to be approved by senior producers and the legal department) make it impossible for them to do any kind of real reporting. news magazines have a little more freedom but any show that has daily output just follows the predetermined format.

        • joe says:

          “everything controversial has to be approved” – that’s funny.

        • sierra7 says:

          Tons of “independent” news sites/small newspapers etc., read the NYT and sluff off stories printed there for their “national news”……They may have a few under-paid local people for local news…..So if you want to know the “line of the day” peruse the NYT headlines….you’ve got it all….or almost….

      • Wolf Richter says:

        More on this Toys “R” Us deal just today:

        This abbreviated article links to a WSJ article behind paywall.

  23. raxadian says:

    Private equity firms just exist to make money thanks to Leveraged Buy Outs that are only legal cause money dear boy.

    Let’s be honest here, being bought using LBOs is a death sentence that turns thriving companie into companies going down the drain.

    Internet just made this happen faster.

    And the stupid zero interest rates made Private equity firms and Junk Bond Stars very happy.

    But the cheap credit has dried out and interests are on the rise.

    What it would take for LBOs to be declared illegal anyway? A comedic movie about LBOs with however the modern equivalent of Eddie Murphy is?

    • max says:

      Before World War II, venture capital investments (originally known as “development capital”) were primarily the domain of wealthy individuals and families. One of the first steps toward a professionally managed venture capital industry was the passage of the Small Business Investment Act of 1958. The 1958 Act officially allowed the U.S. Small Business Administration (SBA) to license private “Small Business Investment Companies” (SBICs) to help the financing and management of the small entrepreneurial businesses in the United States.

      Government Giveth and Taketh Away

  24. Diane Card says:

    I’m not a financial person, but I am an avid shopper. I stopped shopping there much about five years ago. I recently went to our local mall’s Sears store, that has been an anchor store for about 45 years. It is a ghost town, with sale signs on every item and it looks like a going out of business sale. It should be. Few, if any major brands anymore, and merchandise is spread out to fill the empty spaces. It’s a depressing place to be. Put a fork in it. Sears is done.

  25. 728huey says:

    I work just outside my big local mall in my hometown and go by Sears every day. Nevertheless I believe I’ve only bought two items from Sears in the past five years. I have gone inside the store a few times, and each time I have been there the store looks more sparse. A year and a haf ago they were selling electronics like flat screen TVs and computer accessories. Six months ago they got rid of the entire electronics section. They have moved a bunch of mattresses towards the upper front mall entrance to cover up their increasing floor space. Even so, you can barely find any employees at any given time.

  26. Mean Chicken says:

    Malled customers. There, I fixed it.

  27. Montana Man says:

    Our local Kmart here in Montana has no Walmart to compete with within 40 miles. They are doing great, the manager of the store is active and involved in day to day customer service which is good, I always shop there, recently they have been giving back reward points as cash towards your next shopping trip in very high amounts. We have been using the system and getting great deals. Sad to say we have noticed that less and less good items are being stocked and we have to run to the other big town to do shopping. We were told that this little Kmart in a town of 5000 is actually in the top 20 in the USA!

    • Mike G says:

      The KMart in my area is said to be one of their top performers, similarly because there is no Mall-Wart within 40 miles. The store was just sold to Target and is being changed over. Selling off high performing assets for cash tells me the goal is liquidation, not long term survival.

    • Buckaroo Banzai says:

      Kmart is way better than Walmart or Target, both of which are thoroughly repellent. It will be missed when it is gone.

    • GrassRanger says:

      Must be close to the Rez.

  28. Harvey Cotton says:

    If Sears gets down to negative stores, will they finally be out of debt out the wazoo?

  29. 4corners says:

    I’ve been the sorry owner of FAIRX shares for years now. Significant exposure to Sears was the death blow to the once vaunted fund.

  30. Sneaky Pete says:

    Sears was yesterday’s Amazon–same exact business model except you used a catalog instead of a screen to choose items, and then those items (houses included) were shipped to you–even on the Prairie! It was a marvel of innovation.

    Fast forward to today and Sears could have done it again. Instead, they let Amazon eat their lunch. Why? Poor management, inertia, milking a cash cow, the list could go on and on.

    Don’t bemoan Sears’ passing just because you may fondly remember once shopping there. It never really had any intention of surviving.

  31. polistra says:

    Your graphs are BEAUTIFUL. Best graphs I’ve seen in years. The whole story is in those graphs, clear and sharp.

  32. Nich W. says:

    And the comments vilifying …. someone.

    I had fond memories of Sears and Kmart as well.
    Sears, and ToysRus, Bonton, and other such business were going to fail. I hate to say that. But with technology….. Amazon, yada, yada.

    The fast Eddies and Mittens Romneys, and others, smartly saw that and cleverly extracted value RATHER than letting it evaporate with the brands.
    I don’t necessarily want to defend them, but I guess I’m defending technique. The thing is, it takes connections to have borrowed what they did to make the plans work.

    Let’s give credit where it’s deserved. The unraveling of Sears wasn’t a quick thing, it’s taken years of dedications to carefully bring this big beast to the ground without crashing.

    For some reason, I don’t think Sears will even make to Christmas of this year.

  33. JimTan says:

    Sears reminds me a lot of the Caesars casino bankruptcy.

    Caesars Entertainment was formed from a 2008 leveraged buyout of Harrah’s by the PE firms Apollo Global Management and TPG Capital. This buyout straddled Caesars with over $24 billion of debt, which eventually led it to file for bankruptcy protection in 2015. Before bankruptcy, however, Caesars PE owners stripped or sold some of its valuable real estate assets to themselves for below market prices. What the PE firms plan didn’t count on, was that Caesars debtholders included some sharp elbowed hedge funds like Appaloosa and Elliott Management. These creditors sued and had an independent examiner appointed to investigate the claims of fraudulent asset sales at Caesars. Things got so ugly that according to FT “The allegations of impropriety gained enough legal traction that Apollo’s co-founder Marc Rowan and TPG co-founder David Bonderman were ordered by a court last year to produce personal financial documents showing their ability to meet billions of dollars of potential personal judgments against them”.

    PE investors were ultimately forced to give up most of their equity ownership to Caesars creditors. In addition, Caesars creditors negotiated an exchange of some impaired debt for shares of a publicly traded REIT named Vici Properties, which would acquire all of Caesars real estate for below market prices then lease it back to them for similarly low rents.

    I think the lesson hedge funds ultimately took from this drama is that you might be able to get away with stripping a companies assets for below market prices if you lease them back at similarly low rents, and more importantly if you are this companies largest creditor. Naturally now ESL is both Sears Holding’s largest stockholder and its largest creditor. So I think ESL may have the most clout and priority in the event of Sears’ liquidation, and its not clear how other creditors might challenge them in this arena.

    What I do think will be very interesting is to see how the Pension Benefit Guaranty Corporation ( PBGC ) will act, as another unsecured creditor, if they have to cover unfunded pension liabilities at Sears. The PBGC’s Board of Directors are the U.S. Labor Secretary, the U.S. Commerce Secretary and the U.S. Treasury Secretary. Our current U.S. Treasury Secretary Steven Mnuchin is a former a college room mate of ESL’s founder Eddie Lampert, and also an ESL investor. Mnuchin has stated before that he will recuse himself from Sears related PBGC decisions, but I have a feeling this could get very complicated as ESL discloses its net gains from all Sears related entities.

    Another fun fact from the above FT link is that Steven Mnuchin was a Caesars Entertainment equity investor along with Apollo and TPG. Who knew?

  34. Dave says:

    Just left a Sears store today. I went in to the one in montgomeryville mall PA. I wanted to look for snowblower parts(before it is too late). It was a Time Machine back to 1970’s/80’s retail. Low ceilings, poor lighting, worn out display fixtures, sparse shelves and a very depressed store vibe. Of course they did not have what I wanted and I left. That was the first time I have been in a sears or Kmart store in at least 5 years.

    The odd thing is they were the original online/internet (in a manner of speaking) store of their time. The mail order catalog and mail order business propelled them to stardom……. I would posit that this was akin to todays internet monsters..

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