SHLDQ - Sears Holdings Corp

[randomep]

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.

 

I agree :) just bought some today.

[CorpRaider]

Yeah all those retail, blue-haired, grannies trading the credit default swaps are just reacting to the headlines without any real analysis.

[Picasso]

Yeah all those retail, blue-haired, grannies trading the credit default swaps are just reacting to the headlines without any real analysis.

 

In case anyone is interested in those swaps, see attached.  The basis increase per day is ridiculous for something with a "wide margin of safety." 

 

Damn those grannies trading the swaps.  Someone tell them there's a sale going on at JCP and stop buying CDS on this integrated omnichannel rewards based [insert marketing buzzword here].

[valueyoda]

Baker Street must have lost a fortune, as the probability that their call spreads end up in the money before expiration are pretty much non-existent at this point. Furthermore, Walter Investment Management has vastly underperformed of lately.

[Fat Pitch]

Yeah all those retail, blue-haired, grannies trading the credit default swaps are just reacting to the headlines without any real analysis.

 

In case anyone is interested in those swaps, see attached.  The basis increase per day is ridiculous for something with a "wide margin of safety." 

 

Damn those grannies trading the swaps.  Someone tell them there's a sale going on at JCP and stop buying CDS on this integrated omnichannel rewards based [insert marketing buzzword here].

 

With a spread of 2100 bps does that mean the buyer is paying 21% annually to insure the principal of their bond? I may be wrong because that doesn’t sound right.

 

[valueyoda]

The spreads are still below SHLD's Minsky moment early 2012, while the financial condition has deteriorated. So it is very probable, baring a major liquidity event unexpected by the market in the short run, that spreads will exceed those levels.

[txlaw]

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.

 

The stealing the company thesis seems too smart by half to me.

 

Instead, the bigger danger is that ESL will entirely give up the upside for common holders in chase of the grand slam home run.  There seems to be a greater probability now that this is a low risk, low return investment instead of a low risk, high return investment.

 

But the MOS remains for now.

[morningstar]

Yeah all those retail, blue-haired, grannies trading the credit default swaps are just reacting to the headlines without any real analysis.

 

In case anyone is interested in those swaps, see attached.  The basis increase per day is ridiculous for something with a "wide margin of safety." 

 

Damn those grannies trading the swaps.  Someone tell them there's a sale going on at JCP and stop buying CDS on this integrated omnichannel rewards based [insert marketing buzzword here].

 

With a spread of 2100 bps does that mean the buyer is paying 21% annually to insure the principal of their bond? I may be wrong because that doesn’t sound right.

 

It's better to think about it as a 21% yield. The actual economics right now are ~38 pts upfront and 5% a year for Dec. 2019 swap.

[Picasso]

Yeah all those retail, blue-haired, grannies trading the credit default swaps are just reacting to the headlines without any real analysis.

 

In case anyone is interested in those swaps, see attached.  The basis increase per day is ridiculous for something with a "wide margin of safety." 

 

Damn those grannies trading the swaps.  Someone tell them there's a sale going on at JCP and stop buying CDS on this integrated omnichannel rewards based [insert marketing buzzword here].

 

With a spread of 2100 bps does that mean the buyer is paying 21% annually to insure the principal of their bond? I may be wrong because that doesn’t sound right.

 

That is pretty close to right.  This is a 5 year swap, so the estimated bond value might be $10 and the cost is $21/year to insure $100 face.  Part of that is calculated in the fact that it costs 39 points upfront to setup the contract so the annual cost is a going to net out at $21/year.  Implying something like a default with little value to SRAC bondholders in less than 5 years.  If default is expected in less than a year, these things can trade at 8000-9000 basis points.

[benhacker]

CDS seems to be somewhat close to the (albeit very illiquid Sears dealer traded bonds):

 

the '32 7% SRAC bond is *bid* at $51 right now, for a current yield of 14% or so, + 5%/yr for appreciation if the bond pays off at maturity.

the '17 6.8% SRAC bond has collapsed, inverting the curve (as you would expect as the market expects a restructuring event), down to $60 (bid), for a current yield of 11%, + 10%/yr for appreciation if the bond pays off at maturity.

 

Meanwhile just as a data point, the '18 holdco 6.6% bond trades volumes in the high 80's with a 10% YTM.

 

SRAC bonds seem to be saying the same/similar thing as the CDS... perhaps I'm not thinking clearly about it right now as time to filing, and recovery do change the assumptions of breakevens on these quite a bit.  There is also the downside of buy CDS right now vs. shorting bonds M2M is a bit different for sure... but pricing seems inline.

 

So I don't know why the CDS quote is needed to articulate the situation. :) (I do appreciate seeing the data though!)  Bonds at are huge YTMs and the curve is inverted... we don't need CDS to tell us the market is worried... right?  Picasso, as a side note, do you have volume detail on the SRAC CDS?  It must be super thin... there is only like $200m+ outstanding of this debt right now...

 

Curious to other SHLD holders on the divergence of the holdco vs. SRAC debt.  I mean, if people are really worried here that ESL is going to put secured debt in front of everyone, does the holdco really deserve such a premium over the SRAC notes?

 

As always, a very interesting show going on here...

[CorpRaider]

I just brought the CDS up because some of the girls down at the YWCA water aerobics class were going on about it.  Maybe the holdco bond investors see themselves living it up on the bountiful cash-flow from the REMIC or KCD, IP bowie bonds (I can't remember which) that Sears RE was able to dividend up the chain (with the imprimatur of the bahamian insurance regulator), while the SRAC holders are busy waiting for the asset based lenders to go through the vinyl folding deck chairs to see what the shortfall is before they can get to screwing the pensioners out of the real estate.  ;D

[Picasso]

I just brought the CDS up because some of the girls down at the YWCA water aerobics class were going on about it.  Maybe the holdco bond investors see themselves living it up on the bountiful cash-flow from the REMIC or KCD, IP bowie bonds (I can't remember which) that Sears RE was able to dividend up the chain (with the imprimatur of the bahamian insurance regulator), while the SRAC holders are busy waiting for the asset based lenders to go through the vinyl folding deck chairs to see what the shortfall is before they can get to screwing the pensioners out of the real estate.  ;D

 

Omg I'm dying.... I nearly choked on my lunch.

 

Made following this long thread worth it.

[Fat Pitch]

Best investment in this market is Sears Gift cards at 30-40% discounts. I just scooped up a bunch of them and will be purchasing a water heater and a new lawn mower.

[adesigar]

This thread went crazy the last few days. I am long SHLD. I have a couple of questions.

 

Quote from the Setting the Records straight blog post

Third, we entered into the loan now to provide SHC with a stable source of funds during the holiday season as we buy inventory and continue to honor all of our financial commitments to our vendors, our pension plan and our debt holders. Many people have speculated as to why we did not fund this with commercial paper. Commercial paper, by its terms, is generally very short-term in nature (typically 30 days in time or less with renewals/extensions at the lender’s discretion). By contrast, at the company’s discretion, this loan will be in place for up to 5.5 months and should give comfort to all of our suppliers – and to those institutions that support our suppliers – that they will be paid. As a result, this form of funding is more predictable and reliable for our partners and provides us a reasonable rate

Combine the statement which I highlighted in bold with the fact that SHLD seems to be really ramping up store closures so revenue should be down in Q3 and Q4 and also that we will have Q3 earnings release right before thanksgivings. Do you think the $400 million deal was done because the company expects a bad Q3/Q4 and would like to have financing locked in till the end of Q4 and not run into problems with lenders not renewing commercial paper?

 

Another thing I was curious about was the St Joe Involvment.

http://www.bloomberg.com/news/2014-09-25/sears-investor-fairholme-says-st-joe-won-t-participate-in-loan.html?cmpid=yhoo

The above article says

Sears Holdings Corp. (SHLD) shareholder Fairholme Funds Inc. said its affiliate St. Joe Co. (JOE) backed away from providing as much as $100 million in financing to the retailer after a second lender materialized.

AND

St. Joe couldn’t reach an agreement because it wanted better terms on the loan to the troubled retailer, which has suffered 30 straight sales declines.

Wouldn't Berkowitz have known they would not get a better deal than ESL investors?

and

Would St Joe/Berkowitz get details on the properties held as collateral and their valuation if they applied to share in the loan?

 

[Mephistopheles]

What are redemptions looking like at ESL? I'm assuming that investors are redeeming left and right. Given that Eddie only personally owns half of what he controls (about 24% vs. 48.5% control), could it be possible for his controlled stake to come down dramatically in the next few years? After that, Fairholme or others can have a bigger stake than Eddie, and gain some control. Could this be possible?

[wisdom]

Berkowitz is not interested in running SHLD. He is betting on Lampert. He will let him be in charge.

[Mephistopheles]

Well I'm saying in the worst case scenario, control can be taken, even if not by Bruce, and that's a good thing.

[randomep]

 

Bruce B talked on wealthtrack, nothing about SHLD dang!

[alertmeipp]

Anyone look into Sears Canada?

 

 

[krazeenyc]

Best investment in this market is Sears Gift cards at 30-40% discounts. I just scooped up a bunch of them and will be purchasing a water heater and a new lawn mower.

 

LOL. Where do you have access to this? Please share!

[ScottHall]

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!

 

No. Just, no.  :(

[paperwerks]

<<guarantor vs non-guarantor entities >>

 

Yes, I remember this. It is part of the equity longs fairy tail book called "Eddie has a secret plan" and he can't talk about this secret plan or else it wouldn't be a secret!

 

The alternative to this title is also know as "Why mathematics doesn't matter"

 

This most exciting chapter in the SHLD book of fairy tales is the chapter in the equity longs title  "We'll spin off the real estate and then leave the bondholders with just the debts he he"

[ScottHall]

<<guarantor vs non-guarantor entities >>

 

Yes, I remember this. It is part of the equity longs fairy tail book called "Eddie has a secret plan" and he can't talk about this secret plan or else it wouldn't be a secret!

 

The alternative to this title is also know as "Why mathematics doesn't matter"

 

This most exciting chapter in the SHLD book of fairy tales is the chapter in the equity longs title  "We'll spin off the real estate and then leave the bondholders with just the debts he he"

 

Some of the stuff Sears shareholders come up with is stuff you'd see in Wall Street Raider. I once made $50 billion on that game in like half an hour from screwing bondholders in bankruptcy court, doing shit that would never fly in real life.

 

I don't know who started the guarantor, non-guarantor thing but I've seen it alluded to by a lot of "big name" investors. Funny thing is that not a one of them has been willing to come out and explain what they mean when they refer to it. It's always a cryptic, "figure out the puzzle" sort of statement. I suspect it's because they don't really know what they're talking about, because unless there is billions of value locked away in Sears Re that gets mucked up in consolidation, it's all BS.

 

And that's not to say these people aren't good investors. By all accounts, they are. But you can be good, stray outside of circle of competence, and be just as dumb as anybody else.

[hardincap]

http://www.sec.gov/Archives/edgar/data/1214344/000091957414005354/xslF345X02/p6103221.xml

 

berkowitz personally buying?

[peter1234]

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?

 

Short and to the point.

+1

;)