Sears Holdings Corp is in discussions with its Chairman Eddie Lampert and various others lenders on a deal to expand a bankruptcy financing package that would help it avoid liquidation, stated sources extremely close to the matter.
Sears had filed for Chapter 11 bankruptcy on October 15 with a plan to close about 142 of its 700 stores by the end of the year. This threw the future of the iconic, 125-year old retailer, who once used to dominate US malls but now has withered in the age of online retail, in doubt.
Lampert’s hedge fund, ESL Investments Inc, is weighing partnering with other potential lenders to contribute up to $450mn in bankruptcy financing in exchange for key collateral that Sears’ banks currently hold, which includes some store leases, said the sources.
In return for giving up their claims on the collateral, the banks would be given the opportunity to reduce their exposure to Sears by contributing $150mn to the bankruptcy financing, rather than the $300mn that was originally promised. The maneuvers would have the combined effect of boosting the current overall bankruptcy-financing package from $300mn to up to $600mn. The sources also stated that there remained a lot of flexibility in negotiations and the amount of money lenders would extend could change over time
The sources declined to be identified due to the confidential nature of the negotiations. A Sears spokesman also declined to comment.
The company has had trouble raising additional financing beyond what banks originally promised. That is because ESL and other possible new lenders balked at providing as much as $300mn that would be second in line for repayment and lacked the desired collateral to back the loan, according to the sources.
The reworked loan under discussion aims to give Sears, and its roughly 68,000 employees, more breathing room to avoid liquidation and reorganize around a smaller set of stores expected to be put up for sale.
Sears has held discussions with ESL about bidding on roughly 400 financially healthier stores that executives believe could keep the retailer alive, according to court records. One of the sources said ESL is now weighing bidding on as many as 500 stores.
The sources also stated that Sears is pursuing numerous options related to its bankruptcy financing.
A hearing to finalise Sears’ bankruptcy financing is scheduled for November 15, according to a court filing. A deadline for Sears to obtain a bidder for its stores is currently set for December 15, according to court records.