SHLDQ - Sears Holdings Corp

[davidoosnk]

Something very interesting happened in 2008 when Accredited Home Lenders, a mortgage lender, was about to go BK. A hedge fund, Loan Star Capital, bought it at a multiple of the current price (even after renegotiating on price). Stock price had been around $4 and deal was eventually closed at $11.75 http://www.reuters.com/article/2007/10/12/us-accreditedhome-idUSWNAS622320071012

 

I speculate that there was more to this purchase than meets the eye.

 

You don't need to speculate. Lone Star made a stupid $300M mistake and AHL went bankrupt a year and a half later.

 

 

Great, by this logic, Bank of America bought Merrill Lynch because they thought it would make a great investment.

 

All I know is the deal made no sense on the surface when they did it-- mortgage lenders ere already going BK left and right, so the fact that AHL went bankrupt is meaningless. Care to share how come you have so much insight on this? Lone Star had no affiliates that might have benefited? No third parties trading the stock? No friends of theirs trading the options? No assets that were stripped and given to friendly associates. No back channel bailouts or tax advantages? No synergies/advantages despite the BK like the aforementioned See http://www.housingwire.com/articles/2287-what-jpmorgan-didnt-get-lone-star-picks-bear-res.

 

I'm not saying every deal is a conspiracy, just highlighting the fact that things are not always so linear and simple as 1+1= 2.

 

Sears still has a $3 billion plus market cap, $30+ billion in sales, a ton of real estate, and a low float stock price that is easily manipulated, and a lot of negative sentiment. That leaves a lot of room for interested parties to make money in ways that don't necessarily equate to retail profit, and do provide incentive for the stock to continue trading at reasonable levels with lots of volatility. Any thorough analysis ought to incorporate the Wall Street greed factor. That's all I'm saying.

 

 

 

 

[elevensecsrt4]

Something very interesting happened in 2008 when Accredited Home Lenders, a mortgage lender, was about to go BK. A hedge fund, Loan Star Capital, bought it at a multiple of the current price (even after renegotiating on price). Stock price had been around $4 and deal was eventually closed at $11.75 http://www.reuters.com/article/2007/10/12/us-accreditedhome-idUSWNAS622320071012

 

I speculate that there was more to this purchase than meets the eye.

 

You don't need to speculate. Lone Star made a stupid $300M mistake and AHL went bankrupt a year and a half later.

 

 

Great, by this logic, Bank of America bought Merrill Lynch because they thought it would make a great investment.

 

All I know is the deal made no sense on the surface when they did it-- mortgage lenders ere already going BK left and right, so the fact that AHL went bankrupt is meaningless. Care to share how come you have so much insight on this? Lone Star had no affiliates that might have benefited? No third parties trading the stock? No friends of theirs trading the options? No assets that were stripped and given to friendly associates. No back channel bailouts or tax advantages? No synergies/advantages despite the BK like the aforementioned See http://www.housingwire.com/articles/2287-what-jpmorgan-didnt-get-lone-star-picks-bear-res.

 

I'm not saying every deal is a conspiracy, just highlighting the fact that things are not always so linear and simple as 1+1= 2.

 

Sears still has a $3 billion plus market cap, $30+ billion in sales, a ton of real estate, and a low float stock price that is easily manipulated, and a lot of negative sentiment. That leaves a lot of room for interested parties to make money in ways that don't necessarily equate to retail profit, and do provide incentive for the stock to continue trading at reasonable levels with lots of volatility. Any thorough analysis ought to incorporate the Wall Street greed factor. That's all I'm saying.

 

 

 

interesting viewpoint david...kinda wondering what the timetable on SAC and Sears Canada stake sale are at this point.  The loan definitely relieves the fire sale type price in the short term. These obviously are not crown jewels but worth something to someone I hope.

[Kraven]

Wow, this is pretty crazy.  At best Eddie is making a few bucks off the company and at worst they couldn't get any other alternative financing (at least without a usurious rate) and there is a short term liquidity problem.  And in the latter case Eddie still makes a few bucks.  Either way the optics on it are terrible.  Sure, there are plenty of controlling shareholders who would do this deal for a company they run, but usually it isn't in something that's such a well known name unless other factors are at play.  If it was done because why the hell not, he got bad advice.

[morningstar]

How did you get the "32MM" number?  The loan has a base annual interest of 5% + a 1.75% upfront fee (7MM). Assume it is paid off at 12/31/2014, SHLD only will pay 5MM in interest. So the total is 5+7= 12MM.

 

I don't know about others, but this actually seems an attractive short term financing to me, provided to SHLD by ESL.

 

Just imaging what if they have to go to the street to raise 400MM, what interest rate and fee, they may get... given their credit ratings for now.

 

CDS to 12/14 is quoted around -1/1 pts upfront... Obviously that's not a 400 million deep market, but that suggests this was close to the right price for an UNsecured loan, not a first lien hard asset secured loan.

[txlaw]

Wow, this is pretty crazy.  At best Eddie is making a few bucks off the company and at worst they couldn't get any other alternative financing (at least without a usurious rate) and there is a short term liquidity problem.  And in the latter case Eddie still makes a few bucks.  Either way the optics on it are terrible.  Sure, there are plenty of controlling shareholders who would do this deal for a company they run, but usually it isn't in something that's such a well known name unless other factors are at play.  If it was done because why the hell not, he got bad advice.

 

There is an alternative explanation, which is that ESL may be trying to draw a hard line in the sand in negotiations with third party secured lenders on long-term interest rates.  That is, ESL might be saying to potential secured lenders that SHLD will always be able to get short term secured lending at this rate, so long term lenders shouldn't try to get substantially more than that.  This could, in fact, be him trying to get as low a rate possible on future secured loans, which is in the interest of SHLD equity holders.

 

I agree, though, that the optics are definitely terrible on this. 

[Kraven]

Wow, this is pretty crazy.  At best Eddie is making a few bucks off the company and at worst they couldn't get any other alternative financing (at least without a usurious rate) and there is a short term liquidity problem.  And in the latter case Eddie still makes a few bucks.  Either way the optics on it are terrible.  Sure, there are plenty of controlling shareholders who would do this deal for a company they run, but usually it isn't in something that's such a well known name unless other factors are at play.  If it was done because why the hell not, he got bad advice.

 

There is an alternative explanation, which is that ESL may be trying to draw a hard line in the sand in negotiations with third party secured lenders on long-term interest rates.  That is, ESL might be saying to potential secured lenders that SHLD will always be able to get short term secured lending at this rate, so long term lenders shouldn't try to get substantially more than that.  This could, in fact, be him trying to get as low a rate possible on future secured loans, which is in the interest of SHLD equity holders.

 

I agree, though, that the optics are definitely terrible on this.

 

Fair enough.  That isn't something that occurred to me and certainly can't say it isn't true.  I have no idea.  Just from my experience and my gut I would say though that I think it's unlikely.  Maybe we will find out the real reason at some point.

[txlaw]

Wow, this is pretty crazy.  At best Eddie is making a few bucks off the company and at worst they couldn't get any other alternative financing (at least without a usurious rate) and there is a short term liquidity problem.  And in the latter case Eddie still makes a few bucks.  Either way the optics on it are terrible.  Sure, there are plenty of controlling shareholders who would do this deal for a company they run, but usually it isn't in something that's such a well known name unless other factors are at play.  If it was done because why the hell not, he got bad advice.

 

There is an alternative explanation, which is that ESL may be trying to draw a hard line in the sand in negotiations with third party secured lenders on long-term interest rates.  That is, ESL might be saying to potential secured lenders that SHLD will always be able to get short term secured lending at this rate, so long term lenders shouldn't try to get substantially more than that.  This could, in fact, be him trying to get as low a rate possible on future secured loans, which is in the interest of SHLD equity holders.

 

I agree, though, that the optics are definitely terrible on this.

 

Fair enough.  That isn't something that occurred to me and certainly can't say it isn't true.  I have no idea.  Just from my experience and my gut I would say though that I think it's unlikely.  Maybe we will find out the real reason at some point.

 

It would be nice to find out the real reason, but ESL doesn't seem to be very forthcoming in this regard.  So I'm not holding my breath for him to explain anything to minority shareholders.

[Luke 532]

I wouldn't be surprised if this transaction was for nothing more than to send the message that "we have access to liquidity" for negotiation purposes on an auto center, Canada, or property deal.  Basically, we don't have to sell this stuff on the cheap.  Loan due 12/31 (prior to receivables coming due for holiday season) would make me think this isn't necessarily for the holiday season.  Although the 2-month extension, if utilized, could make this a possibility.

[alertmeipp]

Who is adding or most of us just sit and hope for some mega news to hit before the paint dry.

 

Market cap lost is approaching the loan amount.  Glad he didnt lend us and himself 4billion secured by 250 properties.

 

We would trade negative today.

 

 

[BTShine]

My thought is that it's likely related to both the holiday season and negotiating with potential buyers of their assets (as Luke said).  In the end we don't know -- this is all speculation.  We do know that they needed financing and ESL was willing to give it.

 

Also, if ESL is feeling confident it's possible he uses some of this liquidity to repurchase shares in SHLD.  The financing is to be used for "general corporate purposes," which makes share repurchases a possibility.

 

Sears has been losing money and that forces them to either sells assets or sell debt, etc. to raise cash.  For the business this financing is likely not a good signal.

 

 

[merkhet]

My guess is as good as anyone else's.

 

I would have preferred that ESL picked up outside financing, as this move seems to provide a needless conflict with Sears' shareholders.

[txlaw]

Who is adding or most of us just sit and hope for some mega news to hit before the paint dry.

 

Market cap lost is approaching the loan amount.  Glad he didnt lend us and himself 4billion secured by 250 properties.

 

We would trade negative today.

 

I have continued to treat SHLD common as a trading position, and it's been quite profitable for me over the last several years.  However, it's been a while since I've held more than a token position in SHLD (relative to the size of my portfolio).

 

It's beginning to look somewhat attractive now, but it's hard to justify putting money into SHLD when one can put money into, say, a FIATY or BAC. 

[alertmeipp]

Txlaw,

 

I agree. Fiat and bac are both better investment.

 

But i think this 400m means ESL no longer will be doing piece meal deal so next deal should be a big one and address the liquidity issue for longer term.

 

Looking at some near term trading opps as well.

[Wilson-TPC]

Wow...

 

I'm speechless. Why does SHLD need the 400 mil?

 

Why does it have a priority lien against other creditors?

 

Sounds like inner workings here.

 

The smell of bankruptcy is imminent.

[merkhet]

Wow...

 

I'm speechless. Why does SHLD need the 400 mil?

 

Why does it have a priority lien against other creditors?

 

Sounds like inner workings here.

 

The smell of bankruptcy is imminent.

 

Retailers need working capital on the ramp up to the holiday season.

[Guest wellmont]

Txlaw,

 

I agree. Fiat and bac are both better investment.

 

But i think this 400m means ESL no longer will be doing piece meal deal so next deal should be a big one and address the liquidity issue for longer term.

 

Looking at some near term trading opps as well.

 

you can't "address" a liquidity issue at cash incinerating company by throwing more money at it. eventually he will have to address the cash on fire problem. unless he just wants to do it in court.

[Wilson-TPC]

Wow...

 

I'm speechless. Why does SHLD need the 400 mil?

 

Why does it have a priority lien against other creditors?

 

Sounds like inner workings here.

 

The smell of bankruptcy is imminent.

 

Retailers need working capital on the ramp up to the holiday season.

 

So it doesn't even have 400 mil?

[BargainValueHunter]

Who is adding or most of us just sit and hope for some mega news to hit before the paint dry.

 

Market cap lost is approaching the loan amount.  Glad he didnt lend us and himself 4billion secured by 250 properties.

 

We would trade negative today.

 

 

Selling puts today gives one the chance to buy the stock in the mid $20s in Q1, 2015.

I think that price vs the assets is compelling.

[merkhet]

Wow...

 

I'm speechless. Why does SHLD need the 400 mil?

 

Why does it have a priority lien against other creditors?

 

Sounds like inner workings here.

 

The smell of bankruptcy is imminent.

 

Retailers need working capital on the ramp up to the holiday season.

 

So it doesn't even have 400 mil?

 

It has over $800 million, but that's not the point.

 

Retailers generally tend to fund their holiday season ramp with short-term debt of some sort -- usually a revolver. It's pretty standard for the industry. (Though it may be non-standard in this case to get the money from your controlling shareholder.)

[ni-co]

Wow, this is pretty crazy.  At best Eddie is making a few bucks off the company and at worst they couldn't get any other alternative financing (at least without a usurious rate) and there is a short term liquidity problem.  And in the latter case Eddie still makes a few bucks.  Either way the optics on it are terrible.  Sure, there are plenty of controlling shareholders who would do this deal for a company they run, but usually it isn't in something that's such a well known name unless other factors are at play.  If it was done because why the hell not, he got bad advice.

 

There is an alternative explanation, which is that ESL may be trying to draw a hard line in the sand in negotiations with third party secured lenders on long-term interest rates.  That is, ESL might be saying to potential secured lenders that SHLD will always be able to get short term secured lending at this rate, so long term lenders shouldn't try to get substantially more than that.  This could, in fact, be him trying to get as low a rate possible on future secured loans, which is in the interest of SHLD equity holders.

 

I agree, though, that the optics are definitely terrible on this.

 

Fair enough.  That isn't something that occurred to me and certainly can't say it isn't true.  I have no idea.  Just from my experience and my gut I would say though that I think it's unlikely.  Maybe we will find out the real reason at some point.

 

+1

I really can't imagine any kind of sinister deal between ESL and Fairholme with the goal to take SHLD private. Would this even be a possibility for a mutual fund like FAIRX?

[alertmeipp]

U know esl could charge just 5 percent and no fee, and today might trade better. I think the fact that he charge the fee on this type of almost risk free loan reminds ppl that he is not shareholders friendly at all.

 

His pocket and reputation first then the others.

 

Swy is for his cool look.

[heth247]

U know esl could charge just 5 percent and no fee, and today might trade better. I think the fact that he charge the fee on this type of almost risk free loan reminds ppl that he is not shareholders friendly at all.

 

His pocket and reputation first then the others.

 

Swy is for his cool look.

 

I am not in the lending business, but is it an industry standard that you do no-fee lending at 5% rates to borrowers with C ratings?  This is ESL lending, not Eddie lending personally.

[txlaw]

U know esl could charge just 5 percent and no fee, and today might trade better. I think the fact that he charge the fee on this type of almost risk free loan reminds ppl that he is not shareholders friendly at all.

 

His pocket and reputation first then the others.

 

Swy is for his cool look.

 

I am not in the lending business, but is it an industry standard that you do no-fee lending at 5% rates to borrowers with C ratings?  This is ESL lending, not Eddie lending personally.

 

This is ESL (the man) deploying capital on behalf of two entities.  Those entities are affiliated with ESL Investments, which I think probably means that they are funds managed by ESL. 

 

If that is the case, ESL can't just give SHLD a favorable rate without commensurate benefits to the lenders. 

 

And, yeah, we can't forget that Fitch just downgraded SHLD debt.

[compoundinglife]

U know esl could charge just 5 percent and no fee, and today might trade better. I think the fact that he charge the fee on this type of almost risk free loan reminds ppl that he is not shareholders friendly at all.

 

His pocket and reputation first then the others.

 

Swy is for his cool look.

 

Conflict of interest goes both ways. He has an obligation to partners to get a fair return on their cash relative to the market for that type of deal. If he was lending completely out his own pocket then it is a different story.

[bmichaud]

Would love to see a buyback here with the loan proceeds. I mean, why not? The loan is just excess liquidity  :o