SHLDQ - Sears Holdings Corp

[CorpRaider]

The Tisches have apparently been too busy sucking their thumbs since 2006 to allocate anything.

[muscleman]

If I recall correctly, about 12 - 18 months ago he sold a bunch of shares from his fund to his personal account. Some people speculated at the time that it was driven by redemption requests.

 

I'm sure it was from redemptions.

 

I'm referring to current remaining partners, with money still with him. I think those that are past the 5 yr lock up are contemplating their faith in his investment prowess. For those that do continue to exit, it will also be interesting to all see if Lampert will continue to fund their exits, or if it would put further pressure on the share price given the small float. And hopefully Lampert isn't using leverage, or overreaching with his stock as collateral on any personal liabilities...would hate to see an Aubrey McClendon moment.

 

Interesting to watch from the sidelines.

 

It's also kind of fun to speculate if those high net worth clients who would like to exit but can't, are hedging with puts in their personal portfolios, causing the large pricing premiums over the past year.

 

I think how ESL works is that every five years, investors decide if they want to get money out. If they decide not to, they are locked up for another five years.

I can't find detailed info about this, but I saw one video in WSJ about this.

The lockup ended last year and there weren't too many investors who wanted to get out, so they will be locked for another five years from last year.

[muscleman]

The brands (KCD) & real estate reside in the non-guarantor subsidiaries.  Also, the "net" at the end means net of depreciation, which grossly underestimates the value of the real estate.

 

You have to figure out what business the non-guarantor is in -- before you ask whether the value of the non-guarantor subsidiaries depends on the guarantor subsidiaries.  Does it currently?  Probably.  Must it always?  Not necessarily.

 

Hi merkhet,

    I just read through the latest 10-Q. It seems like the notes are issued by the parent, SHLD, even though it is guaranteed by only a few subsidiaries? In case of bankruptcy, don't the note holders have the claims on the parent, SHLD's assets, including the non-guarantors' assets?

 

 

Thank you!

   

[muscleman]

The brands (KCD) & real estate reside in the non-guarantor subsidiaries.  Also, the "net" at the end means net of depreciation, which grossly underestimates the value of the real estate.

 

You have to figure out what business the non-guarantor is in -- before you ask whether the value of the non-guarantor subsidiaries depends on the guarantor subsidiaries.  Does it currently?  Probably.  Must it always?  Not necessarily.

 

Sure. Could you please tell me where to find more info about this, such as what assets are in the non-guarantor and what are in the guarantor?

 

I don't know if this is the easiest way, but it's the way that I have done it. I know there are other Sears followers on this board, so they should feel free to chime in at any time.

 

(1) List of subsidiaries -- http://www.sec.gov/Archives/edgar/data/1310067/000131006713000013/shldex21201210k.htm

(2) The $1.25 billion note for Sears -- http://www.sec.gov/Archives/edgar/data/1310067/000119312510230322/0001193125-10-230322-index.htm -- look under Schedule A and cross-reference

(3) Take the list of non-guarantor subsidiaries and do some Google searching (http://en.wikipedia.org/wiki/Sears_Holdings is also helpful)

 

As an example, take a look at the following:

 

(1) A Google search of "sears KCP IP" -- http://bit.ly/12Q4RUl

(2) Then you start to search for the May 2006 transaction, but that'll come up empty so you go to the 10-K

(3) And you'll find some language on page 46 of the 2006 10-K -- http://www.sec.gov/Archives/edgar/data/1310067/000119312507066067/d10k.htm

 

And then you keep following the rabbit down the hole... :)

 

I am trying my best to figure out if there is anything in the indenture that says even though SHLD is the issuer, it does not have any liabilities for the bond and only the guarantors have liabilities for the bond. I am not sure if I found one. Does the highlighted part mean that?

 

SECTION 10.01. Guarantee.

Subject to the provisions of this Article Ten, each Guarantor, by execution of this Indenture, jointly and severally, unconditionally guarantees to each Holder and to the Trustee and their respective successors and assigns (i) the due and punctual payment of the principal of and interest and premium, if any, on each Note, when and as the same shall become due and payable, whether at maturity, by acceleration, required purchase or otherwise, the due and punctual payment of interest on the overdue principal of and interest on the Notes, to the extent lawful, and the due and punctual payment of all other Obligations of the Issuer to the Holders or the Trustee all in accordance with the terms of such Note, this Indenture and the Registration Rights Agreements, and (ii) in the case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, required purchase or otherwise. Each Guarantor, by execution of this Indenture, agrees that its obligations hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Note or this Indenture, any failure to enforce the provisions of any such Note, this Indenture or the Registration Rights Agreements, any waiver, modification or indulgence granted to the Issuer or any other Guarantor with respect thereto by the Holder of such Note, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or such Guarantor.

 

-51-

Each Guarantor hereby waives diligence, presentment, demand for payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuer, any right to require a proceeding first against the Issuer, protest or notice with respect to any such Note or the Indebtedness evidenced thereby and all demands whatsoever, and covenants that this Guarantee will not be discharged as to any such Note except by payment in full of the principal thereof and interest thereon. Each Guarantor hereby agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) subject to this Article Ten, the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article Six for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Obligations as provided in Article Six, subject to any rescission thereof pursuant to Section 6.04, such Obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee.

 

 

But look at here:

 

The Trustee shall, upon the receipt of a written order of the Issuer signed by an Officer of the Issuer (an “Authentication Order”), the applicable Notes duly executed by the Issuer, and the notation of Guarantee to be endorsed thereon duly executed by each Guarantor, authenticate (i) Notes for original issue on the Issue Date in the aggregate principal amount not to exceed $1,250,000,000 and (ii) Additional Notes in an unlimited principal amount, to the extent permitted by Section 4.04. The Authentication Order shall specify the amount of Notes to be authenticated, the date on which the Notes are to be authenticated, and the names and delivery instructions for each Holder of the Notes. Furthermore, Notes may be authenticated or delivered upon registration or transfer, or in lieu of, other Notes pursuant to Section 2.07, 2.08, 2.11, 3.06 or 8.05 or in connection with a Change of Control Offer pursuant to Section 4.07 or Collateral Coverage Offer pursuant to Section 4.08. The Trustee shall be entitled to receive an Opinion of Counsel of the Issuer and the Guarantors in connection with such authentication of Notes that this Indenture will constitute valid and legally binding obligations of the Issuer and the Guarantors, and that such Notes, when duly authorized and executed by the Issuer and duly authenticated by the Trustee in the manner provided in this Indenture and delivered against payment of the purchase price therefor, will constitute valid and binding obligations of the Issuer, and that the Guarantees, when duly authorized and executed by the Guarantors, will constitute valid and binding obligations of such Guarantors, enforceable in accordance with their terms, subject to (i) bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting the rights or remedies of creditors generally, (ii) the application of general principles of equity, and (iii) applicable law and public policy with respect to rights to indemnity and contribution.

 

[Kraven]

The brands (KCD) & real estate reside in the non-guarantor subsidiaries.  Also, the "net" at the end means net of depreciation, which grossly underestimates the value of the real estate.

 

You have to figure out what business the non-guarantor is in -- before you ask whether the value of the non-guarantor subsidiaries depends on the guarantor subsidiaries.  Does it currently?  Probably.  Must it always?  Not necessarily.

 

Sure. Could you please tell me where to find more info about this, such as what assets are in the non-guarantor and what are in the guarantor?

 

I don't know if this is the easiest way, but it's the way that I have done it. I know there are other Sears followers on this board, so they should feel free to chime in at any time.

 

(1) List of subsidiaries -- http://www.sec.gov/Archives/edgar/data/1310067/000131006713000013/shldex21201210k.htm

(2) The $1.25 billion note for Sears -- http://www.sec.gov/Archives/edgar/data/1310067/000119312510230322/0001193125-10-230322-index.htm -- look under Schedule A and cross-reference

(3) Take the list of non-guarantor subsidiaries and do some Google searching (http://en.wikipedia.org/wiki/Sears_Holdings is also helpful)

 

As an example, take a look at the following:

 

(1) A Google search of "sears KCP IP" -- http://bit.ly/12Q4RUl

(2) Then you start to search for the May 2006 transaction, but that'll come up empty so you go to the 10-K

(3) And you'll find some language on page 46 of the 2006 10-K -- http://www.sec.gov/Archives/edgar/data/1310067/000119312507066067/d10k.htm

 

And then you keep following the rabbit down the hole... :)

 

I am trying my best to figure out if there is anything in the indenture that says even though SHLD is the issuer, it does not have any liabilities for the bond and only the guarantors have liabilities for the bond. I am not sure if I found one. Does the highlighted part mean that?

 

SECTION 10.01. Guarantee.

Subject to the provisions of this Article Ten, each Guarantor, by execution of this Indenture, jointly and severally, unconditionally guarantees to each Holder and to the Trustee and their respective successors and assigns (i) the due and punctual payment of the principal of and interest and premium, if any, on each Note, when and as the same shall become due and payable, whether at maturity, by acceleration, required purchase or otherwise, the due and punctual payment of interest on the overdue principal of and interest on the Notes, to the extent lawful, and the due and punctual payment of all other Obligations of the Issuer to the Holders or the Trustee all in accordance with the terms of such Note, this Indenture and the Registration Rights Agreements, and (ii) in the case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, required purchase or otherwise. Each Guarantor, by execution of this Indenture, agrees that its obligations hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Note or this Indenture, any failure to enforce the provisions of any such Note, this Indenture or the Registration Rights Agreements, any waiver, modification or indulgence granted to the Issuer or any other Guarantor with respect thereto by the Holder of such Note, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or such Guarantor.

 

-51-

Each Guarantor hereby waives diligence, presentment, demand for payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuer, any right to require a proceeding first against the Issuer, protest or notice with respect to any such Note or the Indebtedness evidenced thereby and all demands whatsoever, and covenants that this Guarantee will not be discharged as to any such Note except by payment in full of the principal thereof and interest thereon. Each Guarantor hereby agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) subject to this Article Ten, the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article Six for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Obligations as provided in Article Six, subject to any rescission thereof pursuant to Section 6.04, such Obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee.

 

 

But look at here:

 

The Trustee shall, upon the receipt of a written order of the Issuer signed by an Officer of the Issuer (an “Authentication Order”), the applicable Notes duly executed by the Issuer, and the notation of Guarantee to be endorsed thereon duly executed by each Guarantor, authenticate (i) Notes for original issue on the Issue Date in the aggregate principal amount not to exceed $1,250,000,000 and (ii) Additional Notes in an unlimited principal amount, to the extent permitted by Section 4.04. The Authentication Order shall specify the amount of Notes to be authenticated, the date on which the Notes are to be authenticated, and the names and delivery instructions for each Holder of the Notes. Furthermore, Notes may be authenticated or delivered upon registration or transfer, or in lieu of, other Notes pursuant to Section 2.07, 2.08, 2.11, 3.06 or 8.05 or in connection with a Change of Control Offer pursuant to Section 4.07 or Collateral Coverage Offer pursuant to Section 4.08. The Trustee shall be entitled to receive an Opinion of Counsel of the Issuer and the Guarantors in connection with such authentication of Notes that this Indenture will constitute valid and legally binding obligations of the Issuer and the Guarantors, and that such Notes, when duly authorized and executed by the Issuer and duly authenticated by the Trustee in the manner provided in this Indenture and delivered against payment of the purchase price therefor, will constitute valid and binding obligations of the Issuer, and that the Guarantees, when duly authorized and executed by the Guarantors, will constitute valid and binding obligations of such Guarantors, enforceable in accordance with their terms, subject to (i) bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting the rights or remedies of creditors generally, (ii) the application of general principles of equity, and (iii) applicable law and public policy with respect to rights to indemnity and contribution.

 

With all due respect, I think you're spending a lot of time spinning your wheels here.  You're wasting time I assume you don't want to waste.  You're never going to find the provision you're looking for.  I haven't read this indenture and I'm not going to, but by definition the issuer will be obligated on the debt.  So whichever Sears entity is the issuer it will be obligated.  The guarantors only are liable on the debt if the issuer is unable to pay.  So that's not a good thing.  Even then, the guarantors will typically have subrogation rights (i.e. the issuer would owe them the amounts they paid on their behalf if the issuer ever comes up with funds).  There's no free lunch on any of this. 

[merkhet]

 

Hi merkhet,

    I just read through the latest 10-Q. It seems like the notes are issued by the parent, SHLD, even though it is guaranteed by only a few subsidiaries? In case of bankruptcy, don't the note holders have the claims on the parent, SHLD's assets, including the non-guarantors' assets?

 

Thank you!

 

 

Sears Holdings Corp (SHC) is the issuer, and it's on the hook if it defaults and the guarantor subsidiaries can't cough up the money.  While the non-guarantor subsidiaries are subsidiaries of SHC, they may not be on the hook because they're not guarantors and they're bankruptcy remote entities.  (See the following link: http://definitions.uslegal.com/b/bankruptcy-remote-entity/)

[Kraven]

 

Hi merkhet,

    I just read through the latest 10-Q. It seems like the notes are issued by the parent, SHLD, even though it is guaranteed by only a few subsidiaries? In case of bankruptcy, don't the note holders have the claims on the parent, SHLD's assets, including the non-guarantors' assets?

 

Thank you!

 

 

Sears Holdings Corp (SHC) is the issuer, and it's on the hook if it defaults and the guarantor subsidiaries can't cough up the money.  While the non-guarantor subsidiaries are subsidiaries of SHC, they may not be on the hook because they're not guarantors and they're bankruptcy remote entities.  (See the following link: http://definitions.uslegal.com/b/bankruptcy-remote-entity/)

 

Just a clarification.  A non-guarantor sub would not be expected to be on the hook as you said, although there might be a claim on the parent's equity interest in that entity.  Being bankruptcy remote does not determine whether or not an entity is on the hook for an obligation.  All it means is that an entity has been organized in a manner by which it is unlikely that such entity would ever go into bankruptcy.  However, there have been bankruptcy remote entities that have gone under.  It can be ugly.

[merkhet]

Yes, that's right -- they have a claim on the equity of the subsidiary but not the assets of the subsidiary.

 

I believe GGP had some bankruptcy-remote entities go under in '09.

[muscleman]

Yes, that's right -- they have a claim on the equity of the subsidiary but not the assets of the subsidiary.

 

I believe GGP had some bankruptcy-remote entities go under in '09.

 

Thank you. So SHLD holds equity interests in the non-guarantor subs, and SHLD is liable for all of the $1.25 bn note. So how does that properly separate assets from liabilities, as Old West management said in their 2011 letter? If SHLD goes bankrupt, the equity interests of the non-guarantor subs will be taken away by the note holders.

 

If SHLD performs a spin off for these non-guarantor subs, they have to do it while they are still in good shape. If they do it within 6 months prior to bankruptcy, the note holders can sue them for fraudulent conveyance, can't they?

[merkhet]

I'm not 100% sure about Old West. That said, Sears does not have a solvency issue, so if Sears goes bankrupt, it is unlikely that a $1.25 billion note holder will walk away with a batch of subsidiaries that are making $1 billion in cash flow.

 

I also don't think they will be spinning off the non-guarantors, but I could be wrong.

[muscleman]

 

With all due respect, I think you're spending a lot of time spinning your wheels here.  You're wasting time I assume you don't want to waste.  You're never going to find the provision you're looking for.  I haven't read this indenture and I'm not going to, but by definition the issuer will be obligated on the debt.  So whichever Sears entity is the issuer it will be obligated.  The guarantors only are liable on the debt if the issuer is unable to pay.  So that's not a good thing.  Even then, the guarantors will typically have subrogation rights (i.e. the issuer would owe them the amounts they paid on their behalf if the issuer ever comes up with funds).  There's no free lunch on any of this.

 

This is not always true. If the debt is non-recourse, then the issuer will not have the liability to make it whole.

For example, the US mortgages are non-recourse. If I buy a house with a mortgage and then default. All the bank can recover is only from the foreclosure of the house. It cannot ask me for further compensation for their loss.

 

The $1.24 bn note here is a secured loan, so there is likelihood to be non-recourse. I haven't figured this out yet though. But if you search for sears, non-recourse in google, you can find out that Sears Canada and Orchard Hardware's debt are non-recourse to SHLD.

[Kraven]

 

With all due respect, I think you're spending a lot of time spinning your wheels here.  You're wasting time I assume you don't want to waste.  You're never going to find the provision you're looking for.  I haven't read this indenture and I'm not going to, but by definition the issuer will be obligated on the debt.  So whichever Sears entity is the issuer it will be obligated.  The guarantors only are liable on the debt if the issuer is unable to pay.  So that's not a good thing.  Even then, the guarantors will typically have subrogation rights (i.e. the issuer would owe them the amounts they paid on their behalf if the issuer ever comes up with funds).  There's no free lunch on any of this.

 

This is not always true. If the debt is non-recourse, then the issuer will not have the liability to make it whole.

For example, the US mortgages are non-recourse. If I buy a house with a mortgage and then default. All the bank can recover is only from the foreclosure of the house. It cannot ask me for further compensation for their loss.

 

The $1.24 bn note here is a secured loan, so there is likelihood to be non-recourse. I haven't figured this out yet though. But if you search for sears, non-recourse in google, you can find out that Sears Canada and Orchard Hardware's debt are non-recourse to SHLD.

 

You're mixing up issues and confusing yourself.  Just because something is non-recourse doesn't mean you are not obligated on the debt.  It simply means there is no recourse to your assets.  But absent a legal determination that you are excused on the debt (like in a bankruptcy) or a lender forgiving the debt, the obligation remains.  It may just be in name only depending on the situation.

 

I am further confused why you are spending so much time on these issues.  They strike me as amoeba sized in the grand scheme of things.  While it is often not satisfactory to say that the experts have it handled, in this case it is accurate.  Sears is represented by some of the top lawyers in the country, the best money can buy.  These legal issues are well settled and basic.  While someone may sue down the road after a transaction, I have every confidence that Sears's lawyers will have properly structured any transaction they enter into and minimized the risk.  The risks you are concerned about are the corporate equivalent to an asteroid hitting the earth and ending life as we know it.  It's possible, but what are you going to do about it.  At least in the case of Sears, if you are so concerned, don't own the stock.  I think though you are getting worried over nothing.  There are bigger fish to fry in the analysis.

 

[muscleman]

 

With all due respect, I think you're spending a lot of time spinning your wheels here.  You're wasting time I assume you don't want to waste.  You're never going to find the provision you're looking for.  I haven't read this indenture and I'm not going to, but by definition the issuer will be obligated on the debt.  So whichever Sears entity is the issuer it will be obligated.  The guarantors only are liable on the debt if the issuer is unable to pay.  So that's not a good thing.  Even then, the guarantors will typically have subrogation rights (i.e. the issuer would owe them the amounts they paid on their behalf if the issuer ever comes up with funds).  There's no free lunch on any of this.

 

This is not always true. If the debt is non-recourse, then the issuer will not have the liability to make it whole.

For example, the US mortgages are non-recourse. If I buy a house with a mortgage and then default. All the bank can recover is only from the foreclosure of the house. It cannot ask me for further compensation for their loss.

 

The $1.24 bn note here is a secured loan, so there is likelihood to be non-recourse. I haven't figured this out yet though. But if you search for sears, non-recourse in google, you can find out that Sears Canada and Orchard Hardware's debt are non-recourse to SHLD.

 

You're mixing up issues and confusing yourself.  Just because something is non-recourse doesn't mean you are not obligated on the debt.  It simply means there is no recourse to your assets.  But absent a legal determination that you are excused on the debt (like in a bankruptcy) or a lender forgiving the debt, the obligation remains.  It may just be in name only depending on the situation.

 

I am further confused why you are spending so much time on these issues.  They strike me as amoeba sized in the grand scheme of things.  While it is often not satisfactory to say that the experts have it handled, in this case it is accurate.  Sears is represented by some of the top lawyers in the country, the best money can buy.  These legal issues are well settled and basic.  While someone may sue down the road after a transaction, I have every confidence that Sears's lawyers will have properly structured any transaction they enter into and minimized the risk.  The risks you are concerned about are the corporate equivalent to an asteroid hitting the earth and ending life as we know it.  It's possible, but what are you going to do about it.  At least in the case of Sears, if you are so concerned, don't own the stock.  I think though you are getting worried over nothing.  There are bigger fish to fry in the analysis.

 

Sorry I am a newbie investor, so I am trying to learn everything as detailed as I can when I come across them. I am just taking this opportunity to learn from you experts about SHLD's legal structure and why this structure minimizes the risk, so in the future if I analyze another company on my own, I could tell if it is risky or safe. :)

 

Regarding non-recourse secured loan, what I learned is that: "Non-recourse debt or a non-recourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral."

 

So this means if SHLD's $1.25 bn secured debt is non-recourse, SHLD itself is not obligated to further liabilities once it defaults and transfers the collateral to the note holders.

 

http://en.wikipedia.org/wiki/Nonrecourse_debt

 

Anyway, since you mentioned that SHLD's other risks are more significant, could you please point me to a few so I can study those?

[ScottHall]

 

With all due respect, I think you're spending a lot of time spinning your wheels here.  You're wasting time I assume you don't want to waste.  You're never going to find the provision you're looking for.  I haven't read this indenture and I'm not going to, but by definition the issuer will be obligated on the debt.  So whichever Sears entity is the issuer it will be obligated.  The guarantors only are liable on the debt if the issuer is unable to pay.  So that's not a good thing.  Even then, the guarantors will typically have subrogation rights (i.e. the issuer would owe them the amounts they paid on their behalf if the issuer ever comes up with funds).  There's no free lunch on any of this.

 

This is not always true. If the debt is non-recourse, then the issuer will not have the liability to make it whole.

For example, the US mortgages are non-recourse. If I buy a house with a mortgage and then default. All the bank can recover is only from the foreclosure of the house. It cannot ask me for further compensation for their loss.

 

The $1.24 bn note here is a secured loan, so there is likelihood to be non-recourse. I haven't figured this out yet though. But if you search for sears, non-recourse in google, you can find out that Sears Canada and Orchard Hardware's debt are non-recourse to SHLD.

 

One thing that I want to point out, even though it has nothing to do with Sears, is that only mortgages in some states are nonrecourse. In others they are recourse, and in others still, only certain types of mortgages are nonrecourse.

[Kraven]

 

With all due respect, I think you're spending a lot of time spinning your wheels here.  You're wasting time I assume you don't want to waste.  You're never going to find the provision you're looking for.  I haven't read this indenture and I'm not going to, but by definition the issuer will be obligated on the debt.  So whichever Sears entity is the issuer it will be obligated.  The guarantors only are liable on the debt if the issuer is unable to pay.  So that's not a good thing.  Even then, the guarantors will typically have subrogation rights (i.e. the issuer would owe them the amounts they paid on their behalf if the issuer ever comes up with funds).  There's no free lunch on any of this.

 

This is not always true. If the debt is non-recourse, then the issuer will not have the liability to make it whole.

For example, the US mortgages are non-recourse. If I buy a house with a mortgage and then default. All the bank can recover is only from the foreclosure of the house. It cannot ask me for further compensation for their loss.

 

The $1.24 bn note here is a secured loan, so there is likelihood to be non-recourse. I haven't figured this out yet though. But if you search for sears, non-recourse in google, you can find out that Sears Canada and Orchard Hardware's debt are non-recourse to SHLD.

 

You're mixing up issues and confusing yourself.  Just because something is non-recourse doesn't mean you are not obligated on the debt.  It simply means there is no recourse to your assets.  But absent a legal determination that you are excused on the debt (like in a bankruptcy) or a lender forgiving the debt, the obligation remains.  It may just be in name only depending on the situation.

 

I am further confused why you are spending so much time on these issues.  They strike me as amoeba sized in the grand scheme of things.  While it is often not satisfactory to say that the experts have it handled, in this case it is accurate.  Sears is represented by some of the top lawyers in the country, the best money can buy.  These legal issues are well settled and basic.  While someone may sue down the road after a transaction, I have every confidence that Sears's lawyers will have properly structured any transaction they enter into and minimized the risk.  The risks you are concerned about are the corporate equivalent to an asteroid hitting the earth and ending life as we know it.  It's possible, but what are you going to do about it.  At least in the case of Sears, if you are so concerned, don't own the stock.  I think though you are getting worried over nothing.  There are bigger fish to fry in the analysis.

 

Sorry I am a newbie investor, so I am trying to learn everything as detailed as I can when I come across them. I am just taking this opportunity to learn from you experts about SHLD's legal structure and why this structure minimizes the risk, so in the future if I analyze another company on my own, I could tell if it is risky or safe. :)

 

Regarding non-recourse secured loan, what I learned is that: "Non-recourse debt or a non-recourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral."

 

So this means if SHLD's $1.25 bn secured debt is non-recourse, SHLD itself is not obligated to further liabilities once it defaults and transfers the collateral to the note holders.

 

http://en.wikipedia.org/wiki/Nonrecourse_debt

 

Anyway, since you mentioned that SHLD's other risks are more significant, could you please point me to a few so I can study those?

 

No problem.  It can get confusing.  Yes, if there was a non-recourse debt secured by a certain pool of assets, then that is where a lender (or noteholder) must look upon a default to recover on the debt.  There are various permutations and combinations. 

 

In terms of other risks, I am just speaking generally.  Things like Sears's business model and that kind of thing.  I don't think you will get a lot of mileage in trying to analyze obscure legal points that really will have no bearing on the stock.  Just my opinion.

[muscleman]

 

With all due respect, I think you're spending a lot of time spinning your wheels here.  You're wasting time I assume you don't want to waste.  You're never going to find the provision you're looking for.  I haven't read this indenture and I'm not going to, but by definition the issuer will be obligated on the debt.  So whichever Sears entity is the issuer it will be obligated.  The guarantors only are liable on the debt if the issuer is unable to pay.  So that's not a good thing.  Even then, the guarantors will typically have subrogation rights (i.e. the issuer would owe them the amounts they paid on their behalf if the issuer ever comes up with funds).  There's no free lunch on any of this.

 

This is not always true. If the debt is non-recourse, then the issuer will not have the liability to make it whole.

For example, the US mortgages are non-recourse. If I buy a house with a mortgage and then default. All the bank can recover is only from the foreclosure of the house. It cannot ask me for further compensation for their loss.

 

The $1.24 bn note here is a secured loan, so there is likelihood to be non-recourse. I haven't figured this out yet though. But if you search for sears, non-recourse in google, you can find out that Sears Canada and Orchard Hardware's debt are non-recourse to SHLD.

 

One thing that I want to point out, even though it has nothing to do with Sears, is that only mortgages in some states are nonrecourse. In others they are recourse, and in others still, only certain types of mortgages are nonrecourse.

 

Thank you! I didn't know this before.

http://www.loansafe.org/forum/foreclosure-laws/4130-recourse-v-non-recourse-states.html

[Matson125]

http://www.seritage.com/

SERITAGE Realty Trust, LLC is a nationwide developer of commercial real estate. Our portfolio contains over 200 properties, located in 33 states and totals over 18 Million SF.

 

This is the group that David Lukes is leading and I am certain this website had gone live in the past week or so, as I was doing some digging a few weeks back and didn't come across this. 

In addition to the Ubiquity Critical Environments page www.ubiquityce.com things are starting to get interesting.

 

[Matson125]

Sanjeev, this is out in your neck of the woods isn't it?

 

 

Sears aims to build seven towers on site

http://www.burnabynewsleader.com/news/209521191.html

[muscleman]

No problem.  It can get confusing.  Yes, if there was a non-recourse debt secured by a certain pool of assets, then that is where a lender (or noteholder) must look upon a default to recover on the debt.  There are various permutations and combinations. 

 

In terms of other risks, I am just speaking generally.  Things like Sears's business model and that kind of thing.  I don't think you will get a lot of mileage in trying to analyze obscure legal points that really will have no bearing on the stock.  Just my opinion.

 

I start to get my head wrapped around this. SHLD has over $8 bn liabilities, so why should I focus so much onto that $1.25 bn note?

From the guarantor/non-guarantor breakdown, it seems like they have most liabilities carried on the guarantor subs, and the parent's only debt is the $1.25 bn note, which is secured by relatively liquid inventory and credit card receivables in the guarantor sub. This probably means it is almost unlikely that this note will have claims against the parent holding company.

 

Is there any way to figure out if the remaining liabilities are non-recourse to the parent? They are carries on the guarantor subs' balance sheet, so it is likely not recourse to parent, but I really want to figure this out before I can load up with the shares. :)

[sswan11]

Marc Andreeson on Sears:

 

http://qz.com/36619/andreessen-on-eddie-lampert-sears-play-so-the-real-estates-actually-not-valuable/

[Parsad]

Sanjeev, this is out in your neck of the woods isn't it?

 

 

Sears aims to build seven towers on site

http://www.burnabynewsleader.com/news/209521191.html

 

Yes, I know that area like the back of my hand...it was the mall I went to for the last 21 years, until I moved last year.  You are talking about a billion dollar development if Sears follows through.  That is very valuable land in what is becoming one of the tertiary city centers around Vancouver.  I did not know Sears owned that land!  I think they are very much on the right track if this what they plan on doing with the land on which their retail stores sit.  Cheers!

[ERICOPOLY]

Marc Andreeson on Sears:

 

http://qz.com/36619/andreessen-on-eddie-lampert-sears-play-so-the-real-estates-actually-not-valuable/

 

The founder of Netscrape pontificating on Sears.

[Parsad]

Marc Andreeson on Sears:

 

http://qz.com/36619/andreessen-on-eddie-lampert-sears-play-so-the-real-estates-actually-not-valuable/

 

He's quite incorrect.  I can tell you that simply by the stuff locally Sears has gotten rid of. 

 

The main corporate store in downtown Vancouver where they sold the lease back to Cadillac Fairview for tens of millions is now being occupied by Nordstrom's.  So, that's not quite the Halloween store going in for two weeks. 

 

The development that Dollarbills linked above in the Metrotown Mall area is going to be quite a massive development.  As I mentioned, that will be a billion dollars plus of towers going up.  Whether they sell the land to local developers or partner with them will decide the rate of return, but that is very valuable land and they can easily put up a retail/commercial/condo complex there.  I'm sure this strategy can be applied to many of their other stores around larger cities and municipalities. 

 

I do not own Sears, but I would be more inclined to buy the stock if this is the direction they are taking with the real estate.  Something they should have started doing years ago at a much more rapid pace, instead of burning through cash and assets.  Cheers!

[Guest wellmont]

Marc Andreesen, who suggested that HP buy Autonomy because software was the "future".

[bargainman]

Marc Andreeson on Sears:

 

http://qz.com/36619/andreessen-on-eddie-lampert-sears-play-so-the-real-estates-actually-not-valuable/

 

He's quite incorrect.  I can tell you that simply by the stuff locally Sears has gotten rid of. 

 

The main corporate store in downtown Vancouver where they sold the lease back to Cadillac Fairview for tens of millions is now being occupied by Nordstrom's.  So, that's not quite the Halloween store going in for two weeks. 

 

The development that Dollarbills linked above in the Metrotown Mall area is going to be quite a massive development.  As I mentioned, that will be a billion dollars plus of towers going up.  Whether they sell the land to local developers or partner with them will decide the rate of return, but that is very valuable land and they can easily put up a retail/commercial/condo complex there.  I'm sure this strategy can be applied to many of their other stores around larger cities and municipalities. 

 

I do not own Sears, but I would be more inclined to buy the stock if this is the direction they are taking with the real estate.  Something they should have started doing years ago at a much more rapid pace, instead of burning through cash and assets.  Cheers!

 

Yes but Vancouver is not indicative of most of Sears locations I would think.  You guys don't have amazon at the same scale as in the US.  So I'm not sure how much it will transfer.. I definitely see the threat from amazon being much lower overseas than in the US.