SHLDQ - Sears Holdings Corp

[Matson125]

2014 Appraisal and Assessment Information

 

Class: COMMERCIAL

Land Appraisal: $ 3,417,300

Building Appraisal: $ 2,280,900

Total Appraisal: $ 5,698,200

 

The figure txlaw mentioned above was correct according to the site but to get a mortgage greater than the apprised value is certainly good news.

 

[Picasso]

Well ESL is providing the loan right?  And it appears that he is lending more than a 2014 appraisal.

 

I think the question is, why is Eddie lending at 128% of the appraised value? 

 

Also the articles indicates that the 25 stores that backed the $400 million loan included this store.  25 times the value of this location only gets us up to $175 million.

 

So there should be other, better properties that we will see this on as he converts the short-term loan into a longer-term loan.  All of this is very unusual.

[Luke 532]

If one owns the debt can they convert that to warrants somehow? I know we can use the debt to exercise the warrants at $28.41 for the warrants we already own.  But what about using the debt to buy the warrants prior to expiration (and NOT exercising them immediately)?

 

"Warrantholders may exercise the Warrants through payment of the exercise price in either cash or Notes"

http://www.sec.gov/Archives/edgar/data/1310067/000119312514388201/d812339d424b5.htm

[morningstar]

If one owns the debt can they convert that to warrants somehow? I know we can use the debt to exercise the warrants at $28.41 for the warrants we already own.  But what about using the debt to buy the warrants prior to expiration (and NOT exercising them immediately)?

 

"Warrantholders may exercise the Warrants through payment of the exercise price in either cash or Notes"

http://www.sec.gov/Archives/edgar/data/1310067/000119312514388201/d812339d424b5.htm

 

No; you can use the debt in place of to exercise the warrants (its unlikely you'd ever want to do this before maturity), but you can't exchange the bonds for warrants or stock.

[muscleman]

I couldn’t find this mentioned anywhere.  I found it interesting for a variety of reasons.

 

http://www.memphisdailynews.com/news/2014/nov/1/digest/

 

“Sears Secures $7.3 Million Loan on East Memphis Store

The parent company of Sears has taken out a $7.3 million loan on the store at 4570 Poplar Ave. in East Memphis, part of a broader effort to pump hundreds of millions into the struggling retailer.

Sears Roebuck and Co. secured the $7.3 million loan on the property fromJPP II LLC, which is affiliated with ESL Investments Inc., according to an Oct. 22 deed of trust.

ESL Investments is fully-owned by Sears chairman and CEO Edward S. Lampert, who is providing the cash infusion.

In September, Sears tapped two entities affiliated with ESL for a short-term loan of $400 million. The loan was collateralized by 25 Sears stores, including the one in East Memphis.”

 

Interesting.  It looks like the tax assessed value of the property is $2,279,280.

 

I am glad that I got in and out of SHLD with no loss last year and earlier this year.  :)

When I originally invested, I thought if things continue to go wrong, Eddie would lose patience and simply spin off the properties, but now it looks like he is clearly doing the opposite. When things go bad, he hangs on to his plan and uses the properties as collateral to get loans. This is going exactly like JCP in 2013.

 

Can anyone of you name even one turnaround expert, who did not immediately turn the company around within 2-3 years of him taking control, but after 10 years of struggling, finally turned the company around? I cannot think of even one. Either the turnaround specialist helicoptered in, turned around the company in 2 years, or he fails, right?

[peter1234]

Can anyone of you name even one turnaround expert, who did not immediately turn the company around within 2-3 years of him taking control, but after 10 years of struggling, finally turned the company around? I cannot think of even one. Either the turnaround specialist helicoptered in, turned around the company in 2 years, or he fails, right?

 

This is good insight and you are probably right.

 

Probably hard to find examples since usually if the person does not show results after 1-2 years, they are dismissed.

 

Seeing it from the standpoint of the control owner, most do not stay around multiple turnaround attempts.

 

Probably due to their own shareholders and low odds of success.

 

;)

[krazeenyc]

I couldn’t find this mentioned anywhere.  I found it interesting for a variety of reasons.

 

http://www.memphisdailynews.com/news/2014/nov/1/digest/

 

“Sears Secures $7.3 Million Loan on East Memphis Store

The parent company of Sears has taken out a $7.3 million loan on the store at 4570 Poplar Ave. in East Memphis, part of a broader effort to pump hundreds of millions into the struggling retailer.

Sears Roebuck and Co. secured the $7.3 million loan on the property fromJPP II LLC, which is affiliated with ESL Investments Inc., according to an Oct. 22 deed of trust.

ESL Investments is fully-owned by Sears chairman and CEO Edward S. Lampert, who is providing the cash infusion.

In September, Sears tapped two entities affiliated with ESL for a short-term loan of $400 million. The loan was collateralized by 25 Sears stores, including the one in East Memphis.”

 

Interesting.  It looks like the tax assessed value of the property is $2,279,280.

 

I am glad that I got in and out of SHLD with no loss last year and earlier this year.  :)

When I originally invested, I thought if things continue to go wrong, Eddie would lose patience and simply spin off the properties, but now it looks like he is clearly doing the opposite. When things go bad, he hangs on to his plan and uses the properties as collateral to get loans. This is going exactly like JCP in 2013.

 

Can anyone of you name even one turnaround expert, who did not immediately turn the company around within 2-3 years of him taking control, but after 10 years of struggling, finally turned the company around? I cannot think of even one. Either the turnaround specialist helicoptered in, turned around the company in 2 years, or he fails, right?

 

I think it's more likely that people like us will lose patience.  Eddie is extremely long term oriented -- he can own a position for decades rather than years. My thesis is his plan is to grow real estate operations and shrink the retail operations -- and salvage what he can from retail. How quickly or successfully he is able to do this -- that's anyone's guess. This isn't a turn around --- it's a metamorphosis. 

 

In a turnaround you would expect that there would be investment in the business (in theory to improve things).  The opposite has happened here -- as there was no reinvestment in the core retail business.  I would argue that a turnaround was never attempted -- rather he simply milked whatever he could from the business (perhaps the cow dried up faster than he liked).

 

Also regarding the assessed values of real estate -- it's not a very good way to ascertain value on an individual or small group of properties like the 25 that are part of the loan. You really have to look more in depth -- for example look at redevelopment potential.  The assessments can be way too high or way too low.  Perhaps it's reasonable to use assessed values evaluating 2000 properties -- but when you're looking at specific properties in particular a few phone calls and a little research will go a long way.

[Sunrider]

Hi all

 

... speaking of IB - does anyone know why they booked SHLDZ with a cost basis of $175? I just hope they do their actual accounting correctly in the background :) Got pissed off with them in the past since their platforms seems to be unable to show the correct post-split cost basis either (e.g. AAPL) ... you would think that this is an easy thing to do (yes, I know you can adjust manually --- but why should we have to)?

 

Thanks - C.

[adesigar]

Hi all

 

... speaking of IB - does anyone know why they booked SHLDZ with a cost basis of $175? I just hope they do their actual accounting correctly in the background :) Got pissed off with them in the past since their platforms seems to be unable to show the correct post-split cost basis either (e.g. AAPL) ... you would think that this is an easy thing to do (yes, I know you can adjust manually --- but why should we have to)?

 

Thanks - C.

 

Lucky you. I have accounts at Ameritrade and have not received rights yet. They were 4 days behind Interactive Brokers on SHLDR. Was told it might be Nov 6th before I get SHLDZ. Im actually thinking of moving my accounts to Interactive Brokers.

[heth247]

Lucky you. I have accounts at Ameritrade and have not received rights yet. They were 4 days behind Interactive Brokers on SHLDR. Was told it might be Nov 6th before I get SHLDZ. Im actually thinking of moving my accounts to Interactive Brokers.

 

Neither do I get any SHLDZ in my Scottrade account, they seem to always the slowest...

[muscleman]

Hi all

 

... speaking of IB - does anyone know why they booked SHLDZ with a cost basis of $175? I just hope they do their actual accounting correctly in the background :) Got pissed off with them in the past since their platforms seems to be unable to show the correct post-split cost basis either (e.g. AAPL) ... you would think that this is an easy thing to do (yes, I know you can adjust manually --- but why should we have to)?

 

Thanks - C.

 

You can change the cost basis in TWS. This happens to me all the time. It takes no more than 30 seconds to adjust. :)

[Luke 532]

I am glad that I got in and out of SHLD with no loss last year and earlier this year.  :)

 

I'm glad you did, too, as seeing the bare-chested oiled up dude as your avatar each time you posted was a tad nauseating  :)

[davidoosnk]

Anyone checking out ARCP? At this point sort of like SHLD but without the cash burn?

[FCharlie]

http://www.sec.gov/Archives/edgar/data/1214344/000091957414005986/xslF345X03/p6207191.xml

 

Bruce Berkowitz keeps buying

[Luke 532]

http://www.sec.gov/Archives/edgar/data/1214344/000091957414005986/xslF345X03/p6207191.xml

 

Bruce Berkowitz keeps buying

 

That makes 588,000 shares last week.  And 1.1M shares in the past 2 weeks for Fairholme... or 1% of the entire company he has added to his already huge position.

[Luke 532]

http://www.sec.gov/Archives/edgar/data/1214344/000091957414005986/xslF345X03/p6207191.xml

 

Bruce Berkowitz keeps buying

 

That makes 588,000 shares last week.  And 1.1M shares in the past 2 weeks for Fairholme... or 1% of the entire company he has added to his already huge position.

 

My mistake, not 1.1M but rather 992,400 the past 2 weeks...

10/20; 144,500

10/21-23; 259,100

10/27-29; 271,800

10/30-31; 317,000

[Luke 532]

Anybody care to hypothesize on a reasonable "worst case" price the debt (from the rights offering) will trade at in the first few weeks?  I know anything is possible, but I'm interested to hear what everybody has to say.  I think it was Picasso who said 85 cents on the dollar?  Thanks in advance for your comments.

[ni-co]

Anybody care to hypothesize on a reasonable "worst case" price the debt (from the rights offering) will trade at in the first few weeks?  I know anything is possible, but I'm interested to hear what everybody has to say.  I think it was Picasso who said 85 cents on the dollar?  Thanks in advance for your comments.

 

Well, you can work the way backwards from the warrant pricing. With SHLD at $35.50 and implied volatility of 55%, the warrants theoretically should trade around $19. You'll get 17.6 warrants for each right. So, in the end, you're paying $685 to get a $500 bond and $335 worth of warrants. So, actually you're paying $350 for $500 nominal or $0.70 on the dollar. This pricing is kind of nuts and only explainable by selling pressure (who really wants to own SHLD bonds and warrants?).

[peridotcapital]

Anybody care to hypothesize on a reasonable "worst case" price the debt (from the rights offering) will trade at in the first few weeks?  I know anything is possible, but I'm interested to hear what everybody has to say.  I think it was Picasso who said 85 cents on the dollar?  Thanks in advance for your comments.

 

Well, you can work the way backwards from the warrant pricing. With SHLD at $35.50 and implied volatility of 55%, the warrants theoretically should trade around $19. You'll get 17.6 warrants for each right. So, in the end, you're paying $685 to get a $500 bond and $335 worth of warrants. So, actually you're paying $350 for $500 nominal or $0.70 on the dollar. This pricing is kind of nuts and only explainable by selling pressure (who really wants to own SHLD bonds and warrants?).

 

I don't think that pricing is nuts by any means. The 2018 secured debt is trading in the low 90's and the 2017 unsecured debt is trading in the low 70's. Why wouldn't unsecured 2019 debt trade around 70 cents?

[ScottHall]

Anybody care to hypothesize on a reasonable "worst case" price the debt (from the rights offering) will trade at in the first few weeks?  I know anything is possible, but I'm interested to hear what everybody has to say.  I think it was Picasso who said 85 cents on the dollar?  Thanks in advance for your comments.

 

Well, you can work the way backwards from the warrant pricing. With SHLD at $35.50 and implied volatility of 55%, the warrants theoretically should trade around $19. You'll get 17.6 warrants for each right. So, in the end, you're paying $685 to get a $500 bond and $335 worth of warrants. So, actually you're paying $350 for $500 nominal or $0.70 on the dollar. This pricing is kind of nuts and only explainable by selling pressure (who really wants to own SHLD bonds and warrants?).

 

I don't think that pricing is nuts by any means. The 2018 secured debt is trading in the low 90's and the 2017 unsecured debt is trading in the low 70's. Why wouldn't unsecured 2019 debt trade around 70 cents?

 

I believe the 2017 debt you're referring to are the SRACs. Different spot in the capital structure - IIRC can only really look to Sears for repayment.

 

Structural subordination aside these are Holdings notes, so you might be able to find value a lot more places even though they aren't guaranteed by the subsidiaries.

 

Just a thought. Haven't looked too closely at this one in a while.

[ni-co]

Anybody care to hypothesize on a reasonable "worst case" price the debt (from the rights offering) will trade at in the first few weeks?  I know anything is possible, but I'm interested to hear what everybody has to say.  I think it was Picasso who said 85 cents on the dollar?  Thanks in advance for your comments.

 

Well, you can work the way backwards from the warrant pricing. With SHLD at $35.50 and implied volatility of 55%, the warrants theoretically should trade around $19. You'll get 17.6 warrants for each right. So, in the end, you're paying $685 to get a $500 bond and $335 worth of warrants. So, actually you're paying $350 for $500 nominal or $0.70 on the dollar. This pricing is kind of nuts and only explainable by selling pressure (who really wants to own SHLD bonds and warrants?).

 

I don't think that pricing is nuts by any means. The 2018 secured debt is trading in the low 90's and the 2017 unsecured debt is trading in the low 70's. Why wouldn't unsecured 2019 debt trade around 70 cents?

 

Because this is almost a 15% YTM and this is not the 80s. Because SHLD's real estate is almost completely unencumbered (except those famous 25 assets)? Etc.

 

EDIT: I know what you're up to: cash burn. Yet, SHLD has to burn a lot more cash to not be able to pay this bond back in 2019.

[peridotcapital]

Anybody care to hypothesize on a reasonable "worst case" price the debt (from the rights offering) will trade at in the first few weeks?  I know anything is possible, but I'm interested to hear what everybody has to say.  I think it was Picasso who said 85 cents on the dollar?  Thanks in advance for your comments.

 

Well, you can work the way backwards from the warrant pricing. With SHLD at $35.50 and implied volatility of 55%, the warrants theoretically should trade around $19. You'll get 17.6 warrants for each right. So, in the end, you're paying $685 to get a $500 bond and $335 worth of warrants. So, actually you're paying $350 for $500 nominal or $0.70 on the dollar. This pricing is kind of nuts and only explainable by selling pressure (who really wants to own SHLD bonds and warrants?).

 

I don't think that pricing is nuts by any means. The 2018 secured debt is trading in the low 90's and the 2017 unsecured debt is trading in the low 70's. Why wouldn't unsecured 2019 debt trade around 70 cents?

 

I believe the 2017 debt you're referring to are the SRACs. Different spot in the capital structure - IIRC can only really look to Sears for repayment.

 

Structural subordination aside these are Holdings notes, so you might be able to find value a lot more places even though they aren't guaranteed by the subsidiaries.

 

Just a thought. Haven't looked too closely at this one in a while.

 

Yes, but Sears is the entity that owns the real estate, so there is a lot there to cover the debt. With the first lien HoldCo notes trading in the low 90's, I can't see the second lien debt trading at a similar price. I'd be surprised if the YTM was not in the double-digits.

[Picasso]

I believe the 2018 bonds are 2nd lien secured against inventory/receivables.  The 2019 through the rights will be senior unsecured against the entire holdco.

[ni-co]

I believe the 2018 bonds are 2nd lien secured against inventory/receivables.  The 2019 through the rights will be senior unsecured against the entire holdco.

 

Yes. This was my point. Only the 400m bridge loan is secured by any of the real estate assets.

[ni-co]

Almost forgot this: Add to that any rights you might get for "free" by oversubscribing the offering.