SHLDQ - Sears Holdings Corp

[txlaw]

It's definitely a non-mutual fund & non-personal sale. So either a managed account or his hedge fund.

 

Today: http://www.sec.gov/Archives/edgar/data/1056831/000091957414005383/d6106261_13d-a.htm

9/18: http://www.sec.gov/Archives/edgar/data/1056831/000091957414005278/d6101781_13-d.htm

 

It's interesting that St. Joe wasn't able to come to terms with ESL. I wonder what they wanted that he wasn't willing to give.

 

"[N]o more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government) . . . "

 

15% of the current investment account is probably somewhere around $100 million.  But JOE already owns SHLD debt.  So the amount that JOE can take is likely less than $100 million.

 

I'm thinking ESL wants participations to be taken in large chunks, with $100 million being the smallest chunks he's willing to sell.  After all, the fewer lenders he deals with, the better.

 

But "PYOF" invested 50mil right. 12.5% of the 400mil?

 

Actually, you're right.  According to the agreement, it looks like ESL (or his affiliated funds) will retain (and intends to retain) $350 million and sell off $50 million to PYOF.

 

So getting rid of large chunks likely is not the reason for the negotiations falling through.  Maybe ESL told Bruce B, if you want a piece of this participation interest, you're going to have to pay a premium for it.

 

I guess the large chunks theory may still be possible if the Perots, who someone mentioned are behind PYOF, are ESL investors (I bet Richard Rainwater -- another TX billionaire -- introduced the Perots to Lampert at some point).  If PYOF is a "friendly" who doesn't answer to third party shareholders, like Fairholme, then maybe ESL made an exception.  It can't be beneficial to ESL to have the major minority investor involved in the debt because ESL doesn't really have full control in a BK situation.  It wouldn't be surprising if he priced Fairholme out by saying, well, I actually want to keep this debt, so you have to take a large chunk at a nice premium to par (and no fees for you).

 

Either way, ESL and Bruce B couldn't come to terms on a Fairholme participation.  Considering that Fairholme has been pretty passive/supportive with SHLD and ESL, this can't be a good sign of how ESL will treat minority shareholders . . .

[wisdom]

http://247wallst.com/retail/2014/09/26/speculation-heats-up-for-sears-canada-bankruptcy/

 

[merkhet]

I guess the large chunks theory may still be possible if the Perots, who someone mentioned are behind PYOF, are ESL investors (I bet Richard Rainwater -- another TX billionaire -- introduced the Perots to Lampert at some point).  If PYOF is a "friendly" who doesn't answer to third party shareholders, like Fairholme, then maybe ESL made an exception.  It can't be beneficial to ESL to have the major minority investor involved in the debt because ESL doesn't really have full control in a BK situation.  It wouldn't be surprising if he priced Fairholme out by saying, well, I actually want to keep this debt, so you have to take a large chunk at a nice premium to par (and no fees for you).

 

Either way, ESL and Bruce B couldn't come to terms on a Fairholme participation.  Considering that Fairholme has been pretty passive/supportive with SHLD and ESL, this can't be a good sign of how ESL will treat minority shareholders . . .

 

It depends on what the disagreement was on -- it could be that ESL overreached on terms or that Fairholme overreached on terms. It's difficult to tell from the outside.

 

http://247wallst.com/retail/2014/09/26/speculation-heats-up-for-sears-canada-bankruptcy/

 

Let the rumor mills begin... Also, I like how the Post has a sensationalist headline about Sears Canada going into bankruptcy, then quotes its own source that a bankruptcy isn't imminent and then quotes:

 

Asked by The Post on Thursday about Sears Canada’s recent talks with bankruptcy lawyers, company spokesman Vincent Power said, “There is no truth to this.”

[wisdom]

Since 2004 none of the speculation about SHLD has come true. It is an easy target to trash as ESL does not answer any questions. Everyone becomes a retail expert and knows exactly what needs to be done.

 

Also in the same press release that St Joe was not participating in the debt issue, the last statement was that talks continue.

 

Reality is all this is a none issue. ESL continues doing what he thinks is best as the largest SHLD owner.

[Luke 532]

Let the rumor mills begin... Also, I like how the Post has a sensationalist headline about Sears Canada going into bankruptcy, then quotes its own source that a bankruptcy isn't imminent and then quotes:

 

Asked by The Post on Thursday about Sears Canada’s recent talks with bankruptcy lawyers, company spokesman Vincent Power said, “There is no truth to this.”

 

Yeah, the NY Post is notorious for stuff like this.  They're a glorified tabloid publication.

[txlaw]

I guess the large chunks theory may still be possible if the Perots, who someone mentioned are behind PYOF, are ESL investors (I bet Richard Rainwater -- another TX billionaire -- introduced the Perots to Lampert at some point).  If PYOF is a "friendly" who doesn't answer to third party shareholders, like Fairholme, then maybe ESL made an exception.  It can't be beneficial to ESL to have the major minority investor involved in the debt because ESL doesn't really have full control in a BK situation.  It wouldn't be surprising if he priced Fairholme out by saying, well, I actually want to keep this debt, so you have to take a large chunk at a nice premium to par (and no fees for you).

 

Either way, ESL and Bruce B couldn't come to terms on a Fairholme participation.  Considering that Fairholme has been pretty passive/supportive with SHLD and ESL, this can't be a good sign of how ESL will treat minority shareholders . . .

 

It depends on what the disagreement was on -- it could be that ESL overreached on terms or that Fairholme overreached on terms. It's difficult to tell from the outside.

 

True.

 

What do you think would have been an example of Fairholme overreaching, though?  Surely, Bruce B wouldn't have demanded a higher interest rate.  So do you think it would be something to do with the Protective Advance and Super-Priority Protective Advance terms?

 

Because of JOE's inability to invest more than 15% in SHLD, they probably wouldn't be able to put up money in the case of a Protective Advance, which would give ESL and other lenders the ability to put in additional funding that has super priority.  Perhaps Fairholme is worried that if a large Protective Advance is necessary where JOE cannot participate, they risk holding debt that is under-collateralized?

[Fat Pitch]

At what point do minority shareholders realize that Eddie’s interest is not aligned with shareholders? How much of the senior debt does Eddie own and how much dry powder does he have access to?  Sure lawsuits would fly, but if you are holding just equity you won’t have much of a say in BK court.

 

Too hard pile for me.

 

[stahleyp]

As far as the conspiracy theorists go, why would Lampert try to steal the property from Sears? He's already worth $4 billion or so. He's the first hedge fund manager to pocket $1 billion in single year. How much is he going to make by "stealing" away the property? $8? $10? $15 billion? How much more would that destroy his reputation? That seems like a lot of headache to spend 10 years of a person life, destroy a reputation etc just to screw shareholders over and get a few more billion. I'm not saying it couldn't happen but for a guy who's an admiring of Buffett (and already rich) that seems like a big stretch. 

[txlaw]

I guess the large chunks theory may still be possible if the Perots, who someone mentioned are behind PYOF, are ESL investors (I bet Richard Rainwater -- another TX billionaire -- introduced the Perots to Lampert at some point).  If PYOF is a "friendly" who doesn't answer to third party shareholders, like Fairholme, then maybe ESL made an exception.  It can't be beneficial to ESL to have the major minority investor involved in the debt because ESL doesn't really have full control in a BK situation.  It wouldn't be surprising if he priced Fairholme out by saying, well, I actually want to keep this debt, so you have to take a large chunk at a nice premium to par (and no fees for you).

 

Either way, ESL and Bruce B couldn't come to terms on a Fairholme participation.  Considering that Fairholme has been pretty passive/supportive with SHLD and ESL, this can't be a good sign of how ESL will treat minority shareholders . . .

 

It depends on what the disagreement was on -- it could be that ESL overreached on terms or that Fairholme overreached on terms. It's difficult to tell from the outside.

 

True.

 

What do you think would have been an example of Fairholme overreaching, though?  Surely, Bruce B wouldn't have demanded a higher interest rate.  So do you think it would be something to do with the Protective Advance and Super-Priority Protective Advance terms?

 

Because of JOE's inability to invest more than 15% in SHLD, they probably wouldn't be able to put up money in the case of a Protective Advance, which would give ESL and other lenders the ability to put in additional funding that has super priority.  Perhaps Fairholme is worried that if a large Protective Advance is necessary where JOE cannot participate, they risk holding debt that is under-collateralized?

 

"[T]he Reporting Persons and certain of their affiliates are in discussions concerning a substantially smaller participation in the Short-Term Loan." 

 

So maybe or maybe not JOE, but definitely Fairholme affiliates are still interested.  It looks to me like size was the main issue.  And that's probably because of the Super-Priority terms?

[Fat Pitch]

As far as the conspiracy theorists go, why would Lampert try to steal the property from Sears? He's already worth $4 billion or so. He's the first hedge fund manager to pocket $1 billion in single year. How much is he going to make by "stealing" away the property? $8? $10? $15 billion? How much more would that destroy his reputation? That seems like a lot of headache to spend 10 years of a person life, destroy a reputation etc just to screw shareholders over and get a few more billion. I'm not saying it couldn't happen but for a guy who's an admiring of Buffett (and already rich) that seems like a big stretch.

 

Ask a K-mart shareholder how they feel about Eddie. Not saying it'll happen here, but don’t pretend the odds of it happening is zero.

[stahleyp]

As far as the conspiracy theorists go, why would Lampert try to steal the property from Sears? He's already worth $4 billion or so. He's the first hedge fund manager to pocket $1 billion in single year. How much is he going to make by "stealing" away the property? $8? $10? $15 billion? How much more would that destroy his reputation? That seems like a lot of headache to spend 10 years of a person life, destroy a reputation etc just to screw shareholders over and get a few more billion. I'm not saying it couldn't happen but for a guy who's an admiring of Buffett (and already rich) that seems like a big stretch.

 

Ask a K-mart shareholder how they feel about Eddie. Not saying it'll happen here, but don’t pretend the odds of it happening is zero.

 

I don't think it's zero just unlikely. Didn't Lampert mostly own kmart bonds rather than stock? Also, his legacy didn't really hinge on it. He's not the one that drove kmart into the ground.

[Kraven]

As far as the conspiracy theorists go, why would Lampert try to steal the property from Sears? He's already worth $4 billion or so. He's the first hedge fund manager to pocket $1 billion in single year. How much is he going to make by "stealing" away the property? $8? $10? $15 billion? How much more would that destroy his reputation? That seems like a lot of headache to spend 10 years of a person life, destroy a reputation etc just to screw shareholders over and get a few more billion. I'm not saying it couldn't happen but for a guy who's an admiring of Buffett (and already rich) that seems like a big stretch.

 

Ask a K-mart shareholder how they feel about Eddie. Not saying it'll happen here, but don’t pretend the odds of it happening is zero.

 

I don't think it's zero just unlikely. Didn't Lampert mostly own kmart bonds rather than stock? Also, his legacy didn't really hinge on it. He's not the one that drove kmart into the ground.

 

The point isn't that he is looking to try and "steal" things.  That's for the mass media and yahoo message boards of the world.  The conspiracy theorists.  What he is clearly doing is setting things up so that he is covered from every which angle.  Things go the way he hopes and great the debt he owns gets paid and his equity kicks into high gear.  But things don't turn around and he is positioned to carve up the empire in a way that is most beneficial to himself. 

 

Remember too that he has provided the valuations on the 25 properties.  A valuation today doesn't take into account what a property might be worth if turned to its highest and best use (or even just a better use).  So I would suspect he carefully selected the properties where with some development or otherwise they might be worth multiples of what they currently are.  So imagine this scenario.  Current market cap is about $2.6 bil.  I forget how much he owns/controls, but I believe he owns about 25% and controls another 15% or so.  My numbers are probably off, but let's call it half for sake of argument.  That's $1.3 bil tied to Sears today.  Say the company goes belly up so that's worthless, but he's able to then walk away with these properties, get them developed and they are worth close to what the equity was worth.  That's in addition to the other debt he already owns in the company.

 

The primary point being that he is a smart guy.  He might be destroying the company, but he certainly will not destroy himself or ESL.  At the end of the day people may not like it, but he is doing a great job for himself and his fund, not so much for the company.

[Wilson-TPC]

It's sadly to 671 pages. When I joined it was at 521. If an investment thesis requires any more than 10 minutes to discuss, it's probably not a fat pitch.

 

Take your SOTP of Sears. Forecast out a timeline for liquidation. Slash the valuations by half for conservatism. And if you make enough to compensate you for taking on this risk, then it's a buy.

 

What more is there?

[Fat Pitch]

As far as the conspiracy theorists go, why would Lampert try to steal the property from Sears? He's already worth $4 billion or so. He's the first hedge fund manager to pocket $1 billion in single year. How much is he going to make by "stealing" away the property? $8? $10? $15 billion? How much more would that destroy his reputation? That seems like a lot of headache to spend 10 years of a person life, destroy a reputation etc just to screw shareholders over and get a few more billion. I'm not saying it couldn't happen but for a guy who's an admiring of Buffett (and already rich) that seems like a big stretch.

 

Ask a K-mart shareholder how they feel about Eddie. Not saying it'll happen here, but don’t pretend the odds of it happening is zero.

 

I don't think it's zero just unlikely. Didn't Lampert mostly own kmart bonds rather than stock? Also, his legacy didn't really hinge on it. He's not the one that drove kmart into the ground.

 

The point isn't that he is looking to try and "steal" things.  That's for the mass media and yahoo message boards of the world.  The conspiracy theorists.  What he is clearly doing is setting things up so that he is covered from every which angle.  Things go the way he hopes and great the debt he owns gets paid and his equity kicks into high gear.  But things don't turn around and he is positioned to carve up the empire in a way that is most beneficial to himself. 

 

Remember too that he has provided the valuations on the 25 properties.  A valuation today doesn't take into account what a property might be worth if turned to its highest and best use (or even just a better use).  So I would suspect he carefully selected the properties where with some development or otherwise they might be worth multiples of what they currently are.  So imagine this scenario.  Current market cap is about $2.6 bil.  I forget how much he owns/controls, but I believe he owns about 25% and controls another 15% or so.  My numbers are probably off, but let's call it half for sake of argument.  That's $1.3 bil tied to Sears today.  Say the company goes belly up so that's worthless, but he's able to then walk away with these properties, get them developed and they are worth close to what the equity was worth.  That's in addition to the other debt he already owns in the company.

 

The primary point being that he is a smart guy.  He might be destroying the company, but he certainly will not destroy himself or ESL.  At the end of the day people may not like it, but he is doing a great job for himself and his fund, not so much for the company.

 

Bingo, Eddie is hedging himself. He has an exit plan. Too bad his exit plan doesn’t include minority shareholders nor should he. You are only on the ride if things go well otherwise he takes his ball and go home.

[wisdom]

If the margin of safety is really there, then owners of common should be alright even in a bankruptcy. I do not believe that is going to happen anytime soon unlike a lot of posts here. A lot of the pages are full of speculation on how ESL is out to screw shareholders. So far ESL has not done anything that would hurt the minortiy owners.

 

We shall see when we see evidence of that.

[wisdom]

In another 5 months everyone will forget that this even happened as the loan is re-paid.

 

And then talk will switch back to SYW being a waste of money and how ESL is killing the retailer as losses most likely show up in the 1st quarter of 2015.

 

I guess SHLD is entertainment for a lot of people as it is an enigma.

[Mephistopheles]

And then talk will switch back to SYW being a waste of money and how ESL is killing the retailer

 

Sigh..the good old days

[Picasso]

In another 5 months everyone will forget that this even happened as the loan is re-paid.

 

And then talk will switch back to SYW being a waste of money and how ESL is killing the retailer as losses most likely show up in the 1st quarter of 2015.

 

I guess SHLD is entertainment for a lot of people as it is an enigma.

 

Don't forget the discussion about guarantor vs non-guarantor entities of SHLD.  Something about how the company can go through bankruptcy and some phoenix emerges from the ashes in the form of all the crown jewels set aside for the equity holders.  I'm surpised no one has asked this in a while.... Surely we are due for that soon!

[PLynchJr]

So far ESL has not done anything that would hurt the minortiy owners.

 

We shall see when we see evidence of that.

 

Shop Your Way?

[wisdom]

SYW - are you sure or are you measuring it based on the outcome so far.

 

I do not even have enough information to make that call.

[txlaw]

The primary point being that he is a smart guy.  He might be destroying the company, but he certainly will not destroy himself or ESL.  At the end of the day people may not like it, but he is doing a great job for himself and his fund, not so much for the company.

 

To me, this is one of the most important points that anybody has made on this thread in a while.

 

ESL is currently engaging in a highly criticized business strategy that is consuming cash and, in the past, he has used company cash to increase his controlled stake in the company.  These strategies could someday put him into the annals of business history as a brilliant success -- or a spectacular failure. 

 

BUT, ESL, being the smart fellow that he is, has protected the financial downside risk for himself and the shareholders of his managed funds.  Can we say the same for minority shareholders?  Maybe so, but we don't f------ know because he won't tell shareholders anything.

[zenith]

Interesting Bull put spread trade in the options mkt today for October expiring on 10/18/2014

 

Someone Sold 850 Put contracts (or a 85,000 shares) at the $33 strike and at the same time bought 850 put contracts at $30,

they got a net credit of (sold for $8.40 - cost of puts $6.00) $2.40 net or about $204,000

 

they have a max loss of $.60 or $51,000 and a max profit of $2.40 per contract or $204,000 if it is above $33

 

Essentially Investors initiate this spread either as a way to earn income with limited risk, or to profit from a rise in the underlying stock's price, or both.

They basically think the stock is going to be above $30.60 to break even, and above $33 they keep the entire premium

[alertmeipp]

Are u guys serious?

 

So u will feel better if ESL owns 10 percent of equity so he cant steal the company?

 

And do u guys really believe a 50.1 percent holders can just steal the co for a song during the bk processs without proper evaluation and somehow Bruce will not do anything about it.

 

U tell me why he spins off LE if he wants to steal the co anyways?

 

He has been talking about delivering shareholder value for a long long time. Not just stakeholders value.

 

 

 

 

 

[Luke 532]

Interesting Bull put spread trade in the options mkt today for October expiring on 10/18/2014

 

Someone Sold 850 Put contracts (or a 85,000 shares) at the $33 strike and at the same time bought 850 put contracts at $30,

they got a net credit of (sold for $8.40 - cost of puts $6.00) $2.40 net or about $204,000

 

they have a max loss of $.60 or $51,000 and a max profit of $2.40 per contract or $204,000 if it is above $33

 

Essentially Investors initiate this spread either as a way to earn income with limited risk, or to profit from a rise in the underlying stock's price, or both.

They basically think the stock is going to be above $30.60 to break even, and above $33 they keep the entire premium

 

Basically a bet paying $4 profit for every $1 at risk that SHLD will recover losses form the past 9 trading days.

[Luke 532]

Are u guys serious?

 

It's common when a stock is dropping in price for people to just assume the worst about everything.  Kind of like the "halo effect" in reverse.  Once sentiment turns people might view the loan as "hey, they have access to liquidity and had Lampert, Berkowitz, Perot, etc. willing to give it to them."

 

I still don't think the bridge loan was a big deal at all and it probably is a non-event 3+ months from now, yet the stock is about $9-$10 cheaper.  Some might call that an opportunity.  I sure do.