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Looking to Cut More Costs, Sears Seeking Hundreds of Millions in New Financing


Looking to Cut More Costs, Sears Seeking Hundreds of Millions in New Financing

Beleagured Retailer Announces it Will Consider “All Other Options to Maximize Value” Should Latest Liquidity Efforts Come Up Short

Edward S. Lampert, the chairman and CEO of Sears Holdings Corp. (NASDAQ: SHLD), is once again coming to the financial rescue of the struggling Chicago-based retailer, which reported disappointing holiday sales.

Entities controlled by Lampert are pumping in another $100 million in new financing and Sears is hoping to line up an additional $200 million in new financing from them as well.

The latest round of financing follows a previous $300 million credit agreement from the same Lampert-controlled entities in September 2016. Sears Holdings has amended that agreement that matures this October to increase its borrowing base advance rate for inventory purposes.

The parent company of Sears and Kmart said it’s in discussions with lenders about transactions that would strengthen its balance sheet and restructure terms on potentially more than $1 billion of debt. If successful, the company said those actions would reduce cash interest expenses and extend the maturity of some of that debt.

Further, Sears Holding is also continuing to pursue a secured credit facility of about $407 million, secured by the 138 properties that Sears is restricted from selling by the Pension Benefit Guaranty Corp. The 138 properties have an aggregate appraised value of approximately $985 million.

Sears has worked out a deal with the PBGC to fund $500 million into two pension funds that will unlock sales restrictions on the properties. The company said that deal is expected to be concluded next month.

Along with the financial restructuring efforts, Sears also said it has outlined actions to cut another $200 million in annual inventory and store operation expenses unrelated to the 103 stores the retailer announced this month it was closing in the coming weeks.

“The financial transactions we are pursuing and incremental cost actions are designed to accelerate our return to profitability and enable Sears Holdings to increase our investment in the most promising opportunities in our enterprise,” Lampert said.

However, should these efforts not be fully successful, Sears said it “will consider all other options to maximize the value of its assets.”

Sears Continues To Review its Store Footprint

In addition to the cash savings that could be realized from completion of the financial transactions, Sears said it expects to generate a significant amount of cash from liquidating inventory and related assets of the 103 stores it is closing.

While the closing stores collectively generated about $850 million in sales over the past 12 months, they were among the lowest-performing stores with an average gross margin rate approximately 400 basis points lower than its other stores, Sears said.

Sears has spent years trying to modernize while failing to keep pace with the evolving marketplace. And, while the company has managed to stay afloat by selling and spinning off its real estate assets to generate cash, the chance of a turnaround seems bleak, Morningstar Credit Ratings reported in analyzing the impact of the latest store closures.

Among other things, the ratings agency pointed out that Sears may be running out of big cash-raising opportunities, and that so far it hasn’t been able to address same-store sales declines, which it said underpins Sears’ problems.

Same-store sales have dropped in each of the past 13 years, and through the first three quarters of fiscal 2017, domestic comparable-store sales were down 12.8% year-over-year, Morningstar reported.

The latest store closings are particularly troublesome for a couple of properties, Morningstar noted.

Notably, Sears will be the second anchor to close at the Bangor Mall, a 534,919-square-foot regional mall in Bangor, ME, and the Hanford Mall, a 331,684-square-foot mall in Hanford, CA. Morningstar said it is concerned that these properties could begin to lose in-line tenants if the anchor boxes are not backfilled.

Source: Looking to Cut More Costs, Sears Seeking Hundreds of Millions in New Financing

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