SHLDQ - Sears Holdings Corp

[Foreign Tuffett]

I expect this new interview with Eddie Lampert will send COB&F into a frenzy.

 

https://www.vanityfair.com/news/2018/03/the-strange-odyssey-of-hedge-fund-king-eddie-lampert-sears-kmart

[doughishere]

I think the best thing about this thread right now is how quiet is been considering where we've been the last 9 moths or so. Man, bonds rallying harder than Puerto Rico. Dilution of shareholders. Bruce Blasting out. Well, partly blasting out. Eddie keeps borrowing and surprisingly the assets keep getting sold(we at the end yet?). Supposedly high-short borrow. That letter, as crazy as it sounded, a few months ago from...I forget who.

 

Has this been a wild ride or what? Now, you got to think...with a day like today and the letter Eddie sent to the board, a event you think would at least garner a mention, a nod, something....anything.

 

 

And yet we have nothing. And its just past 6pm Eastern. Which can mean only one thing, we got our-self a mexican stand off.

 

The Sears saga continues.

 

Sears C.E.O. Says His Firm Would Buy Retailer’s Kenmore Brand.

https://www.nytimes.com/2018/04/23/business/sears-edward-lampert.html

[benhacker]

you have a position Doug?

 

I exited my SSRAP end of last year... had bids for the '18's last month, but no fills.  Just watching now.

 

By the way, the borrow is no longer high (<20%) and has been falling regularly for a while.

[doughishere]

you have a position Doug?

 

I exited my SSRAP end of last year... had bids for the '18's last month, but no fills.  Just watching now.

 

By the way, the borrow is no longer high (<20%) and has been falling regularly for a while.

 

I bought common ~$6 around jan of last year and bailed myself out with the bonds more recently. Probably overpaid and sniped some of your bids. Its been uh.....interesting.

[benhacker]

I had a timely (cough) I thought sale of SSRAP and missed one coupon and now they are trading at $13 which is surprising as they are flat with the rest of SSRAP complex but clearly market anticipating a filing or massive exchange - both are bad (or not good) for SSRAP.

 

However, I still think a chance it makes it, and maybe these become ESL debt with the latest offer... wouldn't that be a strange situation. :)

[doughishere]

I had a timely (cough) I thought sale of SSRAP and missed one coupon and now they are trading at $13 which is surprising as they are flat with the rest of SSRAP complex but clearly market anticipating a filing or massive exchange - both are bad (or not good) for SSRAP.

 

However, I still think a chance it makes it, and maybe these become ESL debt with the latest offer... wouldn't that be a strange situation. :)

 

do you know what happened to that website that listed all their props...it got taken down for some reason.

[benhacker]

No, I don't know.  Haven't followed closely for >6 months...

[voyager]

Hey guys quick question from someone who hasn't studied Sears before. 

 

Have you seen any good thoughts surrounding the value of Kenmore and Home Services?

[Picasso]

They just pulled in $400 million for an asset nobody thought had value and not a single comment? My my how sentiment on this board has changed since page 1. Feeling more and more like we’ve reached max capitulation (especially with Berkowitz blowing out) and there’s a lot of money to be made here given some of the recent moves to equitize debt as high as the 2L’s.

[Spekulatius]

They just pulled in $400 million for an asset nobody thought had value and not a single comment? My my how sentiment on this board has changed since page 1. Feeling more and more like we’ve reached max capitulation (especially with Berkowitz blowing out) and there’s a lot of money to be made here given some of the recent moves to equitize debt as high as the 2L’s.

 

He keeps the  SHLD bonfire burning longer than I would have expected, but that unlikely changes the ultimate outcome. From the looks of it, this is the at least partial sale of the SYW program.

[sampr01]

Hi Picasso,

 

Thanks for posting and agree with your sentiment. ESL buying whole or part of home services?. I am in sears debt for last couple of years and keep on rolling from 2017 to 2018 and 2019. I am too scared to invest in common based on prior experience with commons.

 

Thanks

They just pulled in $400 million for an asset nobody thought had value and not a single comment? My my how sentiment on this board has changed since page 1. Feeling more and more like we’ve reached max capitulation (especially with Berkowitz blowing out) and there’s a lot of money to be made here given some of the recent moves to equitize debt as high as the 2L’s.

[sampr01]

https://www.cnbc.com/2018/05/18/eddie-lampert-says-sears-is-shrinking-shedding-assets-to-stay-alive.html?__source=sharebar|twitter&par=sharebar

[Picasso]

They just pulled in $400 million for an asset nobody thought had value and not a single comment? My my how sentiment on this board has changed since page 1. Feeling more and more like we’ve reached max capitulation (especially with Berkowitz blowing out) and there’s a lot of money to be made here given some of the recent moves to equitize debt as high as the 2L’s.

 

He keeps the  SHLD bonfire burning longer than I would have expected, but that unlikely changes the ultimate outcome. From the looks of it, this is the at least partial sale of the SYW program.

 

At the risk of overly simplifying a complex and unknown outcome.. I think something like this needs to be broken down in two parts. First would be understanding different paths of a restructuring (in-court or not) and what that would mean for the equity and debt in the near-term. The market and balance sheet values diverged pretty significantly due to Berkowitz liquidations which opened up options for ESL to maybe create value for the equity to the detriment of bond holders. It was telling that Berkowitz did not exchange his notes. With so much debt trading at half of par and various transactions that included significant conversion of debt to equity you can pencil out some interesting outcomes that are probable given Lampert's background and recent actions. What happens after this restructuring is anyone's guess but there's not much point in focusing on their inevitable demise when they're in the middle of significantly reducing liabilities that the market thinks would make this a zero...  When these transactions are all said and done it will be easier to figure out whether they were for nothing and the retail operations will continue bleeding enough to kill the rest of the business. I don't know what the odds are on stabilizing the retail ops but if you can pay a $200 million stub (I guess closer to $400 million today without accounting for potential dilution) with at least a couple billion coming in while reducing net debt by taking advantage of the bond conditions there are probably much better than 50/50 odds of doing well here in the short-term. The upside on stabilizing the retail ops is so large that even small odds of success there makes this more interesting because you're likely to make money on the first leg of this trade (buying during distress with Berkowitz liquidations and the debt restructuring) with a free look at what comps start looking like later this year. If they turn positive for some reason I imagine this sucker will really fly but at least I don't have to worry about paying up for that like everyone else at $30-40+/share.

 

I think if someone looked at this with fresh eyes and took away any bias the reception would be a lot different.  Just look at all the interviews Lampert has done recently. He's 1) opened himself up to fradulent conveyence risk once again, and 2) specifically said he does not think a bankruptcy is in the cards anytime soon. Doesn't seem like a bad time to bet against consensus.

[BargainValueHunter]

A question for those of you who are still bullish on Sears Holdings...

 

Lampert has made dozens of moves over the last 8 years that have freed up capital or injected capital into the operating cash flow but the burning of that cash has continued unabated. There are no signs that cash burn will become less of a problem in the future.

 

What does it matter if cash is being unlocked when operations will certainly burn the cash before anything resembling a profit is generated?

[walt373]

Will they turn the retail operation around or can they shrink down to a profitable core business? Until that's done, everything else is just buying time.

[DTEJD1997]

Will they turn the retail operation around or can they shrink down to a profitable core business? Until that's done, everything else is just buying time.

 

Yes, Sears is pretty much done in my area of the country.

 

I can not think of an open Kmart anywhere within driving distance.

 

There are a couple of Sears...but I don't shop there.  I don't know of anybody else that regularly goes to a Sears.

 

What happens if Sears gets things turned around, but they only have 150 stores at that point?

 

I think the time for a retail turnaround came and went a long time ago.

[doughishere]

https://www.sec.gov/Archives/edgar/data/923727/000119312518175601/d594357dex9967.htm

 

"there has been a significant increase in the market price of Sears’ unsecured debt that could make the contemplated exchange of debt for equity and debt repurchases less attractive"

 

did eddie not think this one through?

[Greyhound]

We wanted to emphasize that finding an appropriate partner soon will be a critical factor that will materially impact any definitive proposal that we are able to make. Specifically, we believe that our ability to execute the ESL Proposal depends on our ability to engage with partners that can provide strategic and/or management experience to these businesses.

[walt373]

Have we considered the possibility that Eddie was willing to continually do seemingly uneconomic deals with SHLD so that he could profit by selling CDSs that he could make sure would not pay out?

 

https://www.bloomberg.com/news/articles/2018-05-22/sears-looks-like-the-next-company-with-head-scratching-cds-trade

[benhacker]

:)

 

Have we considered the possibility that Eddie was willing to continually do seemingly uneconomic deals with SHLD so that he could profit by selling CDSs that he could make sure would not pay out?

 

https://www.bloomberg.com/news/articles/2018-05-22/sears-looks-like-the-next-company-with-head-scratching-cds-trade

 

Thesis for first 10 years was Eddie was going to "screw" debtholders by hiving off all the good assets.

 

Now Eddie is long CDS (basically a debtholder) so he's screwing equity to enhance his trade.

 

Maybe it's just:

1) company had tons of assets so NAV was higher than anyone believed (except Eddie and a few others)

2) he's not that good at running retail so he obliterated much of the margin of safety

 

And that's pretty much it. :)

 

Half joking... I don't know about the CDS angle, but as a former (long suffering and long voiced creditor) debt holder, just thought the comment/suggestion was amusing.

[TwoCitiesCapital]

Have we considered the possibility that Eddie was willing to continually do seemingly uneconomic deals with SHLD so that he could profit by selling CDSs that he could make sure would not pay out?

 

https://www.bloomberg.com/news/articles/2018-05-22/sears-looks-like-the-next-company-with-head-scratching-cds-trade

 

"Those bonds have been the lowest-priced of the unit’s debt. A buyer of credit derivatives profits from the difference between the face value of a company’s debt and its cheapest bonds, so eliminating low-priced debt decreases the potential payouts for the buyer and gives a higher return to the seller."

 

Aren't CDS all cash settled now via auction? The return to the CDS seller is the spread/coupon paid for the protection less any amount owed in a default. Since physical bonds aren't used for settlement anymore, isn't statement a bit dated?

[BeerBBQ]

Anyone have any thoughts on the 2019 unsecured debt?

 

With today's 8-k, it looks like $4b out of the $5B in outstanding debt now matures on 7/20/20.  Of the $1B that matures before then, I think ESL owns $400m of it.  Also, roughly $134m is due 10/15/18 with the rest due in 2019.  With the impending potential purchase/cash infusion from ESL for Kenmore, Home Services, Real Estate, etc., shouldn't the 2019 debt have a much better chance of being paid than what is implied by current price?

 

Also, it seems curious that the maturity extensions for various debts over the past few years seem to all have land on 7/20/20.   

 

 

 

[doughishere]

Whirlpool down 15% on higher input costs.  Dont they make appliances for Kenmore?

 

https://money.cnn.com/2018/07/24/news/companies/whirlpool-washing-machines-trump-tariffs/index.html

 

 

"The global steel costs have risen substantially, and in particular, in the US, they have reached unexplainable levels," Bitzer told analysts. "Uncertainty" around additional tariffs and global trade had disrupted Whirlpool's supply chain, he said.

 

 

[Spekulatius]

Whirlpool down 15% on higher input costs.  Dont they make appliances for Kenmore?

 

https://money.cnn.com/2018/07/24/news/companies/whirlpool-washing-machines-trump-tariffs/index.html

 

 

"The global steel costs have risen substantially, and in particular, in the US, they have reached unexplainable levels," Bitzer told analysts. "Uncertainty" around additional tariffs and global trade had disrupted Whirlpool's supply chain, he said.

 

It would be helpful if there were announcements of capacity increases for steel, but so far I have not seen any. I am guessing the management of the steel companies are just happy to cash in the windfall from the higher prices and leaves it at that. Steel prices in the US are now way higher than in the rest of the world, so everyone else who is using steel will eat the margin hit, or lay it off to the consumer.

 

I can’t blame steel execs either, given the instability it would be risky to make plans for 3 years out and build a new foundry.

[doughishere]

Whirlpool down 15% on higher input costs.  Dont they make appliances for Kenmore?

 

https://money.cnn.com/2018/07/24/news/companies/whirlpool-washing-machines-trump-tariffs/index.html

 

 

"The global steel costs have risen substantially, and in particular, in the US, they have reached unexplainable levels," Bitzer told analysts. "Uncertainty" around additional tariffs and global trade had disrupted Whirlpool's supply chain, he said.

 

 

It would be helpful if there were announcements of capacity increases for steel, but so far I have not seen any. I am guessing the management of the steel companies are just happy to cash in the windfall from the higher prices and leaves it at that. Steel prices in the US are now way higher than in the rest of the world, so everyone else who is using steel will eat the margin hit, or lay it off to the consumer.

 

I can’t blame steel execs either, given the instability it would be risky to make plans for 3 years out and build a new foundry.

 

Can’t be good for the Kenmore valuation. Too bad Eddie didn’t close a few months ago.

 

CEO of whirlpool

 

"As you can tell from our remarks and from the munbers. we had a very strong pricing progress year-over-year and

sequentially and we also going into the promotion period around July 4. We decided to stand firmm in our pricing pieces

and we executed accordingly. Obviously. I cannot comment on what competitors are doing or not doing. That's their

decision. We've seen over July 4 period that not everybody sticking to consumer price increases but again. that's normal

promotion environment and I'm not readmg too much into this. Again. I can only reaffirm We are standing fnm in mm

price increases and because we are committed it's the only right thing to do with such a cost inflation environment.