Corporate Finance

Sears CEO Proposes $1.1B Debt Restructuring

Eddie Lampert says the retailer must act "without delay" to address “significant near-term liquidity constraints."
Matthew HellerSeptember 24, 2018

Sears CEO Eddie Lampert has proposed further steps to avoid bankruptcy, warning that the embattled retailer must act “without delay” to restructure debt and sell assets.

The proposed restructuring would give Sears “sufficient runway to continue its transformation,” Lampert’s ESL Investments hedge fund said in a regulatory filing, while conceding that the transformation “has taken longer than expected due to a variety of factors, including challenges facing the retail industry.”

Lampert, who owns a controlling stake of about 31% of the Sears’ shares outstanding, cited Sears’ “significant near-term liquidity constraints,” with a debt payment of $134 million due on Oct. 15.

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“Given the current situation, we believe that substantial progress must be made on the transactions described in this proposal or any other proposal that Sears may pursue without delay,” he said.

As CNBC reports, the CEO “has been steadily stripping out assets to keep the company afloat over the past several years.” Sears has lost more than $11 billion since 2011 and has struggled to win back shoppers.

ESL offered to buy the Kenmore appliance brand and certain other divisions of the retailer’s business in April but according to the Chicago Tribune, “the latest proposal is broader and pushes the company to act more quickly” in face of its liquidity problems.

Under the proposal, Sears would restructure $1.1 billion in debt and sell about $1.5 billion in real estate and about $1.75 billion other assets, including Kenmore. Such steps would result in a 78% reduction in current debt, annual interest savings of 80%, and additional liquidity of $1.2 billion realized over two years.

“We believe that Sears can derive more value for all of its stakeholders by entering into liability management transactions and asset sales than would be available by pursuing alternative options to address its liquidity challenges,” Lampert said.

Some analysts, however, remain skeptical that Sears can avoid bankruptcy, noting that the company may be running out of assets it can offer as collateral to lenders.

“Had Sears been owned by anyone else it would have likely long since gone under,” Neil Saunders, managing director at GlobalData Retail, told CNBC.