SHLDQ - Sears Holdings Corp

[ni-co]

The warrants will have a term of approximately five years and the exercise price will be payable either in cash or by surrendering notes issued in the rights offering.

 

That doesn't get you more warrants via paying with the notes.  It's simply exercising your existing warrants using the notes you hold.  Nobody is going to exercise prior to 2019, if at all.

 

I know that. I said it was a possibility to get out of SHLD bonds for someone who changed his mind about holding SHLD credit.

 

Does this work before maturity? Maybe I misunderstood the warrant terms. I understood that I can surrender the bonds at maturity.

 

 

Other SHLD bonds are not listed on an exchange either.  That should not impact whether you can hold/sell those notes.  Have your broker get a bid on the bonds and if they are unable to do so, find a broker that does and DTC the bonds to them to settle the trade.

 

You can get multiple bids across several brokers and execute to the one with the highest price.

 

The rights look abnormally cheap at $170.  I started buying them as well.

 

If you know a broker, please let me know. Yet, my problem with this procedure is that it's not easy at all to open such accounts from Germany. And IB, my broker, won't buy the bonds and won't assist in selling them.

[merkhet]

By 'him buy it back' do you mean 'SHLD buy it back?'

 

Yea -- like putting mostly Sears tenanted stores in the REIT and keeping the rent low for a very long time -- he won't get as much money for it, but maybe he's looking at this as another form of loan...

[adesigar]

The warrants will have a term of approximately five years and the exercise price will be payable either in cash or by surrendering notes issued in the rights offering.

 

That doesn't get you more warrants via paying with the notes.  It's simply exercising your existing warrants using the notes you hold.  Nobody is going to exercise prior to 2019, if at all.

 

I know that. I said it was a possibility to get out of SHLD bonds for someone who changed his mind about holding SHLD credit.

 

Right, but the original problem was somebody not wanting to hold the notes.  I just want to make sure people don't think they can simply trade in their bonds immediately and get additional shares/warrants, it would exercise their existing warrants.  5 years out is a completely different story, one in which assumes holding the notes for that long.

 

My only concern about the switch from SHLD to SHLDZ is how to participate in future spinoffs/rights like the REIT one. Anyone have any idea how this would work?

[ni-co]

My bad. I misunderstood the terms last time I read the agreement.

 

You can surrender the bonds before maturity:

 

Exercise of Warrant; Term; Rescission of Exercise.

(A) Subject to Section 2 and any other agreement between the Company and the Warrantholder and except as set forth in this Section 3, to the extent permitted by applicable laws and regulations, all or a portion of the Warrants evidenced by this Warrant Certificate are exercisable by the Warrantholder, at any time or from time to time after 5:00 p.m., New York City time on the business day immediately following the Issue Date, but in no event later than 5:00 p.m., New York City time on December 15, 2019 (the “Expiration Time”), by

 

(1) delivery to the Warrant Agent […]

 

(2) either (a) payment by check […] or (b) surrendering Notes (with a principal amount of $500 or any whole multiple thereof) which shall be valued at their aggregate principal amount, plus accrued and unpaid interest, if any (other than any interest with respect to which a record date for the payment of such interest has occurred), as of the applicable date of surrender, in each case in an amount equal (or, in the case of surrender pursuant to clause (b) in an amount at least equal) to the Exercise Price multiplied by the number of Shares thereby purchased, subject, in the case of Notes held through the Depositary, to the Depositary’s applicable procedures and the Warrantholder effecting, or arranging for, the transfer of such Notes through the Depositary’s deposit and withdrawal at custodian (DWAC) system, and

 

(3) a written acknowledgement to the Warrant Agent […]

 

All principal and accrued and unpaid interest amounts (other than any interest with respect to which a record date for the payment of such interest has occurred) of the Notes surrendered pursuant to clause (2)(b) of the preceding sentence in excess of the Exercise Price multiplied by the number of Shares thereby purchased shall be forfeited to the Company by the Warrantholder surrendering such Notes and shall not be refunded to such Warrantholder.

 

http://www.sec.gov/Archives/edgar/data/1310067/000119312514388191/d806570dex44.htm

 

[Luke 532]

My bad. I misunderstood the terms last time I read the agreement.

 

You can surrender the bonds before maturity:

 

But why would someone do that?  Why exercise your warrants prior to maturity and automatically cancel any time value remaining within them?

[BTShine]

By 'him buy it back' do you mean 'SHLD buy it back?'

 

Yea -- like putting mostly Sears tenanted stores in the REIT and keeping the rent low for a very long time -- he won't get as much money for it, but maybe he's looking at this as another form of loan...

 

Gotcha.  Yes, that's definitely a possibility.  But, it will be the responsibility of the workers, executives and board of directors of this SHLD REIT to maximize rents and returns for the shareholders.  So, while it's possible in the short run for rents to be well below market I believe that in the long run 3+ years the rents will trend towards market.  This is just my opinion, tho.

[ni-co]

My bad. I misunderstood the terms last time I read the agreement.

 

You can surrender the bonds before maturity:

 

But why would someone do that?  Why exercise your warrants prior to maturity and automatically cancel any time value remaining within them?

 

Only because of liquidity. It wouldn't make any sense from a value perspective.

[Luke 532]

Anybody have thoughts on % over-subscription will be granted on the debt/warrant rights?

[krazeenyc]

Anybody have thoughts on % over-subscription will be granted on the debt/warrant rights?

 

very close to 0.

[krazeenyc]

My bad. I misunderstood the terms last time I read the agreement.

 

You can surrender the bonds before maturity:

 

But why would someone do that?  Why exercise your warrants prior to maturity and automatically cancel any time value remaining within them?

 

Only because of liquidity. It wouldn't make any sense from a value perspective.

 

There are more reasons than that.

[thinkpad]

My bad. I misunderstood the terms last time I read the agreement.

 

You can surrender the bonds before maturity:

 

But why would someone do that?  Why exercise your warrants prior to maturity and automatically cancel any time value remaining within them?

 

If you want more Shld shares to get more rights for the REIT.... I think it is a good reason. :)

 

[Luke 532]

My bad. I misunderstood the terms last time I read the agreement.

 

You can surrender the bonds before maturity:

 

But why would someone do that?  Why exercise your warrants prior to maturity and automatically cancel any time value remaining within them?

 

If you want more Shld shares to get more rights for the REIT.... I think it is a good reason. :)

 

But the warrants will likely be adjusted to account for that.  In a way they're similar to the TARP warrants.

 

http://www.sec.gov/Archives/edgar/data/1310067/000119312514388191/d806570dex44.htm

Strike price and number of shares adjustment: In case the Company shall fix a record date for the making of a distribution to all holders of shares of its Common Stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash Dividends, dividends of its Common Stock and other dividends or distributions referred to in Section 12(A)), in each such case, the Exercise Price in effect prior to such record date shall be reduced immediately thereafter or at such later date as the Board of Directors may determine for purposes of the determination of Fair Market Value (but in any event not later than 10 business days after the first date on which the Common Stock trades regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading without the right to receive such distribution) to the price determined by multiplying the Exercise Price in effect immediately prior to the reduction by the quotient of (x) the Market Price of the Common Stock on the last trading day preceding the first date on which the Common Stock trades regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the Fair Market Value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of Common Stock divided by (y) such Market Price on such date specified in clause (x); such adjustment shall be made successively whenever such a record date is fixed. In such event, the Warrant Share Number shall be increased to the number obtained by multiplying the Warrant

 

[elevensecsrt4]

My broker (or lack thereof) is making these rights a pain...the sears canada rights were a non issue (except for delayed delivery).

 

I am planning on transferring my shares to another broker after the first of the year. I am currently leaning towards tdamtd or tradeking since I already have accounts there.

 

Anyone else having issues selling or subscribing to these rights?

 

I will admit this is the first time I have participated in one like this, the scc rights went smooth but these are tripping up the admin of my current broker (share-builder) which is obviously not the broker for holding SHLD  in the future.

 

I don't trade options and up until lately haven't participated in rights offerings.. This stuff just seems to be over my current broker's expertise.

 

Just curious if anyone had any recommendations/ experiences with brokers based on the various spinoffs, rights offerings that have happened and appear to be continuing to happen.

[ScottHall]

My broker (or lack thereof) is making these rights a pain...the sears canada rights were a non issue (except for delayed delivery).

 

I am planning on transferring my shares to another broker after the first of the year. I am currently leaning towards tdamtd or tradeking since I already have accounts there.

 

Anyone else having issues selling or subscribing to these rights?

 

I will admit this is the first time I have participated in one like this, the scc rights went smooth but these are tripping up the admin of my current broker (share-builder) which is obviously not the broker for holding SHLD  in the future.

 

I don't trade options and up until lately haven't participated in rights offerings.. This stuff just seems to be over my current broker's expertise.

 

Just curious if anyone had any recommendations/ experiences with brokers based on the various spinoffs, rights offerings that have happened and appear to be continuing to happen.

 

What about IB? I doubt they'd give you any shit, but that's just based on hearsay.

[elevensecsrt4]

I will check into Ib, seems overbuilt for what I need but shld is changing day to day these days..  I will research it nonetheless.

 

I have just been informed that My broker can't hold the warrants,exercise the rights in there account after saying they could during the last week.  So I will be forced to sell my rights after earmarking enough cash in advance to participate in them, seems too late to attempt to transfer the rights to another account being they expire very soon.  Well I guess now I research how else I will be able to hold them..Haven't been paying much attention in detail about how they will trade after being exercised , so back to the drawing board. :-\

[JAllen]

As Sears Gasps, Lampert Turns to Financial Engineering to Revive Ithttp://mobile.nytimes.com/blogs/dealbook/2014/11/11/as-sears-gasps-lampert-turns-to-financial-engineering-to-revive-it

 

via http://stockbase.com/news

[texual]

Interesting article that I fail to understand. He suggests that ESL is setting itself up for winning at the expense of everyone else? Or that he is getting away with something? These rights are all on a pro rata basis. He also is funding these with cash from his own pocket. So are shareholders. He is the largest one. How is him owning a large chunk of Canada, the REIT etc giving him anything special? All shareholders are paying the same way to gain these assets. Even the spin offs were to everybody. Is this article correct to anybody?

 

Also fairholme was called a hedge fund. I lost interest in the article when I read that, he is just repeating a bunch of stuff that he mostly gathered from other wonky sources on the internet. I personally don't think ESL is cheating anyone. He is paying the same rate for SHOS, Canada, and the REIT as all his fellow shareholders.

 

Everybody suffers together is more like it ;)

 

He also suggests bankruptcy will help ESL too. I don't see it that way.

[Picasso]

Interesting article that I fail to understand. He suggests that ESL is setting itself up for winning at the expense of everyone else? Or that he is getting away with something? These rights are all on a pro rata basis. He also is funding these with cash from his own pocket. So are shareholders. He is the largest one. How is him owning a large chunk of Canada, the REIT etc giving him anything special? All shareholders are paying the same way to gain these assets. Even the spin offs were to everybody. Is this article correct to anybody?

 

Also fairholme was called a hedge fund. I lost interest in the article when I read that, he is just repeating a bunch of stuff that he mostly gathered from other wonky sources on the internet. I personally don't think ESL is cheating anyone. He is paying the same rate for SHOS, Canada, and the REIT as all his fellow shareholders.

 

Everybody suffers together is more like it ;)

 

He also suggests bankruptcy will help ESL too. I don't see it that way.

 

+1

 

I used to think that the long thesis for SHLD was well known but the more I follow the story the more I realize how much bad information is out there.  Despite worries I had about Lampert taking SHLD private at a unfair price, he has been allowing other shareholders to participate in the spin-offs and through rights offerings. 

 

I can list several things wrong or odd with that article:

 

1) Wall Street is not "going mad" over SHLD stock.  If this is going mad, I hate to see what running for the hills looks like.

2) Creditors are weary of taking Sears credit?  I thought that was a rumor when the stock was trading in the mid-20's.

3) Positioning himself well for a bankruptcy?  He's splitting up the debt with everyone else.  If he stood to "benefit" so would everyone else.

4) Does the market really believe the retail business to be "worthless?"  A slimmed down Sears is still doing about $27 billion or so of sales.  If the retail business can at least stop losing money it would also help to assign better value to the assets the company holds.

5) This is not zero-sum for shareholders so far.  ESL and Berkowitz by owning over 75% are injecting the lionshare of new capital into SHLD which has eliminated the type of risk that exists in something like JCP.  Good luck getting JCP shareholders to agree to that.  Oh right, they diluted 30% of the market cap when they needed some cash.  They have been reducing credit risk within SHLD which is the bear argument, but somehow this is still zero-sum. 

6) A sale-leaseback/REIT strategy will obviously have to be fair to both side, but why does the new holding (the REIT) have to remain undervalued?  It also assumes the cash raised by SHLD will also disappear or provide no returns to SHLD.

7) I don't think investors were pushing for a REIT for a decade. 

8) Pershing had a plan with JCP but ESL did not with SHLD???.... ?????.... All ESL has had with SHLD are a bunch of plans.

 

I'm not a big Sears fan but it starts to get old when you see the damned if you do or damned if you don't type of coverage on a stock.  If I didn't know better the article makes it sound like he is swapping all his equity for secured debt with no personal repercussions from a bankruptcy.

[Marve2013]

Hi All,

 

Just wondering how one should go about comparing investing in the rights SHLDZ vs the upcoming REITs rights offering? 

 

With the SHLDZ - I see it as a more direct play on the asset-light, integrated Shopping Model.  The cash raised from both offerings (Notes and REITS) will be used mainly for this purpose.  Re holding the Notes throughout to maturity, I can actually see that with all the cash being raised/declining pension obligations, there is a chance that the yields will decline.  But obviously it's unsecured.

 

With the REITS offering - direct link to the undervalued property? (although it will depend on which properties are selected).  Also there might be a chance that the REIT will have to raise additional funds for re-development plans? 

 

About the comment that acquiring more of the warrants from SHLDZ will allow to participate more in the REITS offering, I'm not so sure.  I would think it will based more on the shareholding proportion, not including warrants (unless exercised warrants prior to REIT offering).

 

If you don't want to exceed a certain allocation for Sears, which would you rather?

 

Many thanks for your thoughts 

 

 

[Luke 532]

About the comment that acquiring more of the warrants from SHLDZ will allow to participate more in the REITS offering, I'm not so sure.  I would think it will based more on the shareholding proportion, not including warrants (unless exercised warrants prior to REIT offering).

 

It seems to me that the warrants would definitely participate in the REIT offering (indirectly via strike price adjustment), as well as any other spinoffs, dividends, etc.  See bolded text below...

 

http://www.sec.gov/Archives/edgar/data/1310067/000119312514388191/d806570dex44.htm

In case the Company shall fix a record date for the making of a distribution to all holders of shares of its Common Stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash Dividends, dividends of its Common Stock and other dividends or distributions referred to in Section 12(A)), in each such case, the Exercise Price in effect prior to such record date shall be reduced immediately thereafter or at such later date as the Board of Directors may determine for purposes of the determination of Fair Market Value (but in any event not later than 10 business days after the first date on which the Common Stock trades regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading without the right to receive such distribution) to the price determined by multiplying the Exercise Price in effect immediately prior to the reduction by the quotient of (x) the Market Price of the Common Stock on the last trading day preceding the first date on which the Common Stock trades regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the Fair Market Value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of Common Stock divided by (y) such Market Price on such date specified in clause (x); such adjustment shall be made successively whenever such a record date is fixed. In such event, the Warrant Share Number shall be increased to the number obtained by multiplying the Warrant

[Marve2013]

Hi Luke,

 

Thanks for pointing that out for me.  I didn't see it from that angle.  Was more focused on whether we can buy more of the REITs offering given the warrants we subscribed for ...

[bobp]

Interesting that the notes can be used to pay the warrant exercise price, valued at principle . So the note trading at a discount will be worth face value if exercising. Right? This is a positive kicker for the notes.

 

I don't know how much it will come into play because the warrants at issue will have 5 years of time value attached. Maybe it could allow for a complicated hedge, long warrants and notes/short common - too complicated for me.

 

But if the common trades at 100 let's say, the notes will be worth pretty close to par.

 

I'm not putting too much thought into it, but this feature of the notes is interesting and I think meaningful.

[wisdom]

http://www.bloomberg.com/video/jcpenney-macy-s-what-is-the-new-retail-reality-~qEhKiAfRJSUAvHZU1Vb~Q.html?cmpid=yhoo

 

[Luke 532]

Anybody have thoughts on % over-subscription will be granted on the debt/warrant rights?

 

very close to 0.

 

I figured that was the case since the rights are trading well north of $0.  Anybody else have a different take on how much we might be granted via over-subscription?

 

It would be nice to get more warrants at a price less than their intrinsic value :) (Assuming you can sell debt at 80 cents... $500 - $400 = $100 investment / 17.6 warrants = $5.68.  Warrants currently $10 in-the-money).

[Guest wellmont]

I can sell 17.6 shares of SHLD for 670 and I can buy SHLDR rights for $170+$500 which give me exactly 17.6 shares and give me the equivalent of a 6% dividend for 5 years on the exact same money I had in the SHLD shares. Am I crazy or am I missing something?

 

The first highlighted is 17.6 shares of SHLD, the second is warrants.  There's a big difference as 17.6 shares of SHLD obviously have a higher dollar value than 17.6 warrants.

 

Yes but look at it 5 years out. I have 17.6 shares now worth 670.

option a is I keep shares - In 2019 I have 17.6 shares of SHLD

option b is I move to rights - I get $40 per year for 5 years and in 2019 I have 17.6 shares of SHLD. I can switch to shares at anytime by surrendering the bonds.

 

it seems to me that eddie constructed a synthetic convertible bond. if all goes well all the debt will be converted to equity. I think he did it this way to give investors liquidity, as the warrants will have a liquid market.