The Litigious Side of Sears

The company and bondholders disagree over the retirement of debt before maturity.
Stephen TaubFebruary 9, 2004

Sears, Roebuck and Co. has sued nearly 20 firms that hold its bonds in a dispute over whether it can redeem about $700 million of its debt, according to the Chicago Tribune.

The retailing giant wants to use proceeds from the November sale of its credit-card business to Citicorp Inc. to buy back the bonds, which it claims will save it tens of millions of future interest payments. Doing so “will permit Sears to eliminate the substantial amount of interest” that would otherwise be paid to the bondholders, according to the complaint filed last week in Cook County Circuit Court in Chicago.

The defendants include Prudential Insurance Co., US Steel Corp. and Carnegie Pension Fund, and JP Morgan Securities Inc.

Sears argues it is permitted to retire the debt before it matures under certain circumstances. One such circumstance is that customer receivables fall below a certain level, which Sears claims is the case following the sale of the credit-card business.

Late last year Sears told its trustees to send out notices January 2 that it planned to redeem the debt February 2, according to the Tribune. “Sears has since received a letter dated Jan. 29 from counsel representing all of the defendants, except JP Morgan, asserting that Sears lacks any legal basis to redeem its debentures,” the company’s complaint reportedly states.

JP Morgan sent a separate letter saying that it, too, might object to Sears’ redemption, according to the report. In addition, certain bondholders stated in their letters they might sue Sears in various foreign courts, the report added.

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