SHLDQ - Sears Holdings Corp

[CorpRaider]

Zach, I don't own any SHLD, but I think I would view it similarly to how you are.  "Raising liquidity" from our "substantial assets" to me doesn't mean, "we will force the shareholders to pony up more cash or get massively diluted."

[Luke 532]

SHC Speaks

Funding Our Transformation & Leveraging our Real Estate Assets

http://blog.searsholdings.com/leadership-viewpoint/funding-our-transformation-leveraging-our-real-estate-assets/

[Picasso]

So this is going to be a 5-year, 8% convertible senior unsecured bond with the strike at the money?  Interesting structure.

 

At $625 million you are looking at an extra $50 million dollars a year of interest expense.  Last I looked SHLD does not have enough EBITDA to cover this?  Eddie must have a good idea of what he is going to do with this cash if he's willing to pay 8% + the imbedded cost of the warrant (which is interesting given he bought back so much stock at $100 a share, only to issue $625 million back at $28.4) .

 

Also interesting comment from Berkowitz.  Does not seem like he is fully sold on this structure.  If he does not majorly participate, he will run the risk of having another layer between him and SHLD's assets plus the potential for some major dilution (21% or so).

 

I might just buy SHLD only to oversubscribe to this rights offering.  Need to look into this some more.

[Luke 532]

Email response from the OCC: "Typically, the exchanges will list the new standard options one day after the effective date of the adjustment. So the non-standards will be the only game in town for one day usually. However, listing is up to the exchanges, and we cannot guarantee the timing."

 

Since the effective date listed in the PDF's I posted earlier was today, that means news SHLD-only options should be available for trade on Monday.

 

SHLD-only option chain is open under ticker "SHLD" - limited number of strike prices.  For example, only 27's, 30's, and 32's available for January 2016.  But I'm sure more strikes will be added in the near future.

[Mephistopheles]

Hey guys, I have a question about SHLDR. I had a handful of shares in one of my parents IRAs that I sold on October 15th in order to buy another stock. The record date for the offering was October 16th. I assumed that I would still be a stockholder of record, but I haven't received the rights so I guess not?

 

If not, then who would be delivered those rights? The person who bought the shares from me wouldn't have become a shareholder on record until he settled 3 days later. I remember being confused about the same issue with the LE spinoff and still don't quite get it. I know if I sell shares before a dividend payout, I still get the dividend as long as I sell on the ex-dividend or after, but it seems different with spinoffs.

 

Thanks.

[oddballstocks]

So the fact that hes not monetizing the real estate as quickly as necessary to cover costs and instead needs to dilute shareholder interest by requiring more capital to maintain the same level of ownership doesn't cause anyone to second guess this thesis of real estate being the floor value? Seems to me that the floor has now become the level equity holders refuse to put up anymore capital.

 

Yup, looks like Sears is doing something entirely new an innovate: monetizing their shareholders.

 

If I posted an idea about some biotech that kept raising cash from shareholders to dump into a risky venture I'd be booed out of the place.  Yet this is exactly what Sears is doing.

[fareastwarriors]

Sears Seeks New Cash Via Two Paths

 

Struggling Retailer Offers New Debt Rights/Warrants, Leases Location Space

 

 

http://online.wsj.com/articles/sears-to-lease-seven-locations-to-primark-1413801646

[JRH]

Yup, looks like Sears is doing something entirely new an innovate: monetizing their shareholders.

 

If I posted an idea about some biotech that kept raising cash from shareholders to dump into a risky venture I'd be booed out of the place.  Yet this is exactly what Sears is doing.

 

100% agree!

 

No.  I very much like the idea of warrants at a strike of $28 and change.

 

Just that simple, eh? A new class of security is worth the dilution at what you [i assume] still consider depressed prices? Maybe you should check the prospectus to see if these warrants have anti-dilution clauses against any future "transformation funding." ;)

[morningstar]

Hey guys, I have a question about SHLDR. I had a handful of shares in one of my parents IRAs that I sold on October 15th in order to buy another stock. The record date for the offering was October 16th. I assumed that I would still be a stockholder of record, but I haven't received the rights so I guess not?

 

If not, then who would be delivered those rights? The person who bought the shares from me wouldn't have become a shareholder on record until he settled 3 days later. I remember being confused about the same issue with the LE spinoff and still don't quite get it. I know if I sell shares before a dividend payout, I still get the dividend as long as I sell on the ex-dividend or after, but it seems different with spinoffs.

 

Thanks.

 

The ex. date (10/17) was after the record date. You did actually get the rights, as the record-date shareholder, but you passed them on immediately to the buyer so they won't ever show up in your account.

 

http://nyserules.nyse.com/nyse/rules/nyse-rules/chp_1_3/chp_1_3_16/default.asp

[krazeenyc]

So this is going to be a 5-year, 8% convertible senior unsecured bond with the strike at the money?  Interesting structure.

 

At $625 million you are looking at an extra $50 million dollars a year of interest expense.  Last I looked SHLD does not have enough EBITDA to cover this?  Eddie must have a good idea of what he is going to do with this cash if he's willing to pay 8% + the imbedded cost of the warrant (which is interesting given he bought back so much stock at $100 a share, only to issue $625 million back at $28.4) .

 

Also interesting comment from Berkowitz.  Does not seem like he is fully sold on this structure.  If he does not majorly participate, he will run the risk of having another layer between him and SHLD's assets plus the potential for some major dilution (21% or so).

 

I might just buy SHLD only to oversubscribe to this rights offering.  Need to look into this some more.

 

 

This is not exactly how the structure works. the rights offering offers you the unsecured bond AND the 5 year warrant. They are initially attached as part of the rights offering, but once they're yours they separate. IE you can sell the warrants and keep the bonds.

 

Interesting structure indeed.

[Mephistopheles]

Hey guys, I have a question about SHLDR. I had a handful of shares in one of my parents IRAs that I sold on October 15th in order to buy another stock. The record date for the offering was October 16th. I assumed that I would still be a stockholder of record, but I haven't received the rights so I guess not?

 

If not, then who would be delivered those rights? The person who bought the shares from me wouldn't have become a shareholder on record until he settled 3 days later. I remember being confused about the same issue with the LE spinoff and still don't quite get it. I know if I sell shares before a dividend payout, I still get the dividend as long as I sell on the ex-dividend or after, but it seems different with spinoffs.

 

Thanks.

 

The ex. date (10/17) was after the record date. You did actually get the rights, as the record-date shareholder, but you passed them on immediately to the buyer so they won't ever show up in your account.

 

http://nyserules.nyse.com/nyse/rules/nyse-rules/chp_1_3/chp_1_3_16/default.asp

 

Makes sense, thank you.

[heth247]

 

Yup, looks like Sears is doing something entirely new an innovate: monetizing their shareholders.

 

Agree, indeed very creative (just compare to what JCP did), and will preserves the upside for those long-term shareholders, and limit the downside  should the transformation fail and company liquidate, while providing the company with the much needed capital at a critical time of the transformation.

 

If I posted an idea about some biotech that kept raising cash from shareholders to dump into a risky venture I'd be booed out of the place.  Yet this is exactly what Sears is doing.

 

Disagree. Although there is risk in the transformation, I think it is much less risky than a biotech, or any startup in retail.  They already have a customer base with $30B revenue. Their job is not to grow but how to shrink to profit.

 

[compoundinglife]

So the fact that hes not monetizing the real estate as quickly as necessary to cover costs and instead needs to dilute shareholder interest by requiring more capital to maintain the same level of ownership doesn't cause anyone to second guess this thesis of real estate being the floor value? Seems to me that the floor has now become the level equity holders refuse to put up anymore capital.

 

Yup, looks like Sears is doing something entirely new an innovate: monetizing their shareholders.

 

If I posted an idea about some biotech that kept raising cash from shareholders to dump into a risky venture I'd be booed out of the place.  Yet this is exactly what Sears is doing.

 

Fair point. However in all of those other situations are the CEOs fully participating in the offerings with their or their partners capital? It is a difference worth pointing out in the comparison. I am not debating that this is bullish or otherwise just pointing out a difference between the two situations you mentioned.

[undervalued]

I think everyone should stay away from SHLD until ESL gives up the retail and turn it into an investment vehicle... if not just be prepare to keep pumping more money into it.. If the small investors run out of money first, then the bigger portion of the pie will go to ESL and whoever keeps paying for a bigger piece.

[wisdom]

Looks like SHLD will not be insolvent by Jan 2015 and ESL is not stealing SHLD from minority shareholders.

 

Is this a short sqeeze?

[TwoCitiesCapital]

Looks like SHLD will not be insolvent by Jan 2015 and ESL is not stealing SHLD from minority shareholders.

 

Is this a short sqeeze?

 

Thats my guess. No reason that a rights offering and a debt issuance would result in a 23% gain otherwise. Actually, I'd expect the stock to be down slightly.

[wisdom]

Lets see how the shorts deal with this and how good Luke's calculations on the short %ages has been. Interesting to watch.

[heth247]

 

Thats my guess. No reason that a rights offering and a debt issuance would result in a 23% gain otherwise. Actually, I'd expect the stock to be down slightly.

 

I think it is not just the rights offering + debt news, the news of leasing to Primark also plays a big part.

[wisdom]

Primark is only 7 stores. But, it does layout the future for SHLD which has already been discussed here.

 

Obviously the news release was designed to have an impact.

[heth247]

Primark is only 7 stores. But, it does layout the future for SHLD which has already been discussed here.

 

Obviously the news release was designed to have an impact.

 

Exactly, that's what I meant to say... ;) 

[HeresyValue]

Derp. The crux to the short thesis has been a liquidity issue arising from continued cash burn. With both SC and this issue the main reason/catalyst for shorting has dissipated. A better argument is that the previous prices were only reflective of that thesis, and now the market can move onto more rational valuation metrics and other narratives.

[alertmeipp]

No wonder there are solid buyers bidding off my calls last week.

 

Someone know this squeeze is coming.

 

Took my lost too early.

[Luke 532]

Somebody sent me this today and I found it interesting (posted with permission, emphasis added by me):

 

The debt has interest of $50M/year, and given that their current EBITDA does not support that, it either means Eddie has lost his marbles, or he seems something big in the near future that is basically as close to a 100% chance of happening as possible which will boost their EBITDA at least enough to pay off that interest.

 

Personally, I don't think that will come from the transformation though because the retail is too unpredictable to make a bet like this with debt and assume you'll have the $50M starting next year to pay the interest. I have a feeling it may come from something bigger like much larger bulk-lease deals in the pipeline right now.

 

It's also likely the reason that the other SHLD bonds rallied today. Generally, existing bonds tend to sell off when new debt is issued, since it's just made the company's capital structure more risky. With Sears today, the opposite happened since Eddie bought unsecured debt (although it was senior).

[focusinvestor]

Somebody sent me this today and I found it interesting (posted with permission, emphasis added by me):

 

The debt has interest of $50M/year, and given that their current EBITDA does not support that, it either means Eddie has lost his marbles, or he seems something big in the near future that is basically as close to a 100% chance of happening as possible which will boost their EBITDA at least enough to pay off that interest.

 

Personally, I don't think that will come from the transformation though because the retail is too unpredictable to make a bet like this with debt and assume you'll have the $50M starting next year to pay the interest. I have a feeling it may come from something bigger like much larger bulk-lease deals in the pipeline right now.

 

It's also likely the reason that the other SHLD bonds rallied today. Generally, existing bonds tend to sell off when new debt is issued, since it's just made the company's capital structure more risky. With Sears today, the opposite happened since Eddie bought unsecured debt (although it was senior).

 

Another thing to think about... Eddy seemed to hastily get the loan accomplished a few short weeks ago. Per the documents, that loan is to be repaid quickly. Something leads me to believe that he wanted to get the leasing news out so that he could do a more thoughtful capital raise (and a second chance to make it right). He can then take out the existing financing in short order regardless of how the holiday season goes.

 

 

[Luke 532]

Somebody sent me this today and I found it interesting (posted with permission, emphasis added by me):

 

The debt has interest of $50M/year, and given that their current EBITDA does not support that, it either means Eddie has lost his marbles, or he seems something big in the near future that is basically as close to a 100% chance of happening as possible which will boost their EBITDA at least enough to pay off that interest.

 

Personally, I don't think that will come from the transformation though because the retail is too unpredictable to make a bet like this with debt and assume you'll have the $50M starting next year to pay the interest. I have a feeling it may come from something bigger like much larger bulk-lease deals in the pipeline right now.

 

It's also likely the reason that the other SHLD bonds rallied today. Generally, existing bonds tend to sell off when new debt is issued, since it's just made the company's capital structure more risky. With Sears today, the opposite happened since Eddie bought unsecured debt (although it was senior).

 

I should add that these comments came from somebody that, in his words, "didn't dream of touching the stock for many years until 2 weeks ago."  Based on previous conversations with him I can verify that is true for at least the past 2 months and I have no reason to believe he was bullish at any point prior to then.