merkhet Posted November 16, 2014 Share Posted November 16, 2014 Has anyone thought about why ESL is doing a rights offering for the REIT rather than encumbering them with debt instead? Link to comment Share on other sites More sharing options...
Kuhndan Posted November 16, 2014 Share Posted November 16, 2014 Isn't the REIT going to be a combination of cash (rights offering proceeds) plus debt? Link to comment Share on other sites More sharing options...
ni-co Posted November 16, 2014 Share Posted November 16, 2014 Isn't the REIT going to be a combination of cash (rights offering proceeds) plus debt? No. The REIT is going to have the debt on it, not SHLD. Has anyone thought about why ESL is doing a rights offering for the REIT rather than encumbering them with debt instead? There are two advantages: 1. The debt is not on SHLD's balance sheet. 2. Investors (and ESL for that matter) can pick and choose their assets. Link to comment Share on other sites More sharing options...
Guest wellmont Posted November 17, 2014 Share Posted November 17, 2014 a rights offering will allow ESL to own more of the REIT than if it was a pure spin. Link to comment Share on other sites More sharing options...
merkhet Posted November 17, 2014 Share Posted November 17, 2014 a rights offering will allow ESL to own more of the REIT than if it was a pure spin. Not comparing the rights offering to a spin. Just comparing a rights offering versus walling off the 200 to 300 properties in a subsidiary and then using that subsidiary to secure a loan to Sears Holdings. And also, that's not necessarily true, right? It gives him the possibility of owning more than a straight spin, but that depends on the exercise of the rights amongst the rest of the shareholders. Has anyone thought about why ESL is doing a rights offering for the REIT rather than encumbering them with debt instead? There are two advantages: 1. The debt is not on SHLD's balance sheet. 2. Investors (and ESL for that matter) can pick and choose their assets. I don't see why (1) matters all that much, and, as for (2), ESL can pick and choose his assets while holding the assets within Sears Holdings as well. He has full control over which assets become encumbered and which do not. At the very basic level, a rights offering is paying for something that you already own. Now, I understand that adding liquidity to the company allows for value unlocking to some extent -- but can't you achieve that same value unlocking by encumbering the real estate? Either way, you are extracting value from the real estate to plow into the other operations, no? And it's moderately tax-inefficient because you miss out on the tax-deduction (though you gain from rent deductions so maybe it's a wash). Link to comment Share on other sites More sharing options...
ni-co Posted November 17, 2014 Share Posted November 17, 2014 Has anyone thought about why ESL is doing a rights offering for the REIT rather than encumbering them with debt instead? There are two advantages: 1. The debt is not on SHLD's balance sheet. 2. Investors (and ESL for that matter) can pick and choose their assets. I don't see why (1) matters all that much, and, as for (2), ESL can pick and choose his assets while holding the assets within Sears Holdings as well. He has full control over which assets become encumbered and which do not. At the very basic level, a rights offering is paying for something that you already own. Now, I understand that adding liquidity to the company allows for value unlocking to some extent -- but can't you achieve that same value unlocking by encumbering the real estate? Either way, you are extracting value from the real estate to plow into the other operations, no? And it's moderately tax-inefficient because you miss out on the tax-deduction (though you gain from rent deductions so maybe it's a wash). Yes, either way you're infusing liquidity into the company by effectively leveraging the RE. However, a rights offering (i) ensures that this cash comes from shareholders instead of banks or bondholders (which makes sense if you think that the credit rating is too bad) while (ii) strengthening the SHLD balance sheet. He doesn't want to add any new debt to it. I think that it's about the "asset light business model" ESL is pursuing. He's been working for years to reduce the liabilities. Does a retailer really need to be a RE company at the end of the day? Link to comment Share on other sites More sharing options...
merkhet Posted November 17, 2014 Share Posted November 17, 2014 Right, so the only thing I can think of is that he couldn't get the price and/or terms that he wanted from the banks, so he's turning to shareholders. I wonder what the debt capacity of the REIT will be... because, if I were ESL, I'd try to find a way to get rid of the existing debt that prevents me from making Restricted Payments (some spinoffs, buybacks, etc.) so that I have complete financial flexibility going forward. Link to comment Share on other sites More sharing options...
ni-co Posted November 17, 2014 Share Posted November 17, 2014 I wonder what the debt capacity of the REIT will be... because, if I were ESL, I'd try to find a way to get rid of the existing debt that prevents me from making Restricted Payments (some spinoffs, buybacks, etc.) so that I have complete financial flexibility going forward. I haven't thought about that but you're right. It's very plausible that this is exactly what ESL is up to. Link to comment Share on other sites More sharing options...
morningstar Posted November 17, 2014 Share Posted November 17, 2014 A rights offering raises significantly more cash for the parent that just issuing debt against the same properties, since you get paid for the equity as well. Maximizing Holdings liquidity seems to be a major goal for ESL with all these transactions. Link to comment Share on other sites More sharing options...
bci23 Posted November 17, 2014 Share Posted November 17, 2014 I wonder what the debt capacity of the REIT will be... because, if I were ESL, I'd try to find a way to get rid of the existing debt that prevents me from making Restricted Payments (some spinoffs, buybacks, etc.) so that I have complete financial flexibility going forward. I haven't thought about that but you're right. It's very plausible that this is exactly what ESL is up to. This quote from their blog also seems to support that: "We continue to work to enhance our financial flexibility. As previously announced, over the next six to 12 months, Sears Holdings intends to work with its lenders and others to evaluate its capital structure with a goal of achieving more long-term flexibility, and may take other actions as appropriate." Link to comment Share on other sites More sharing options...
Luke 532 Posted November 17, 2014 Share Posted November 17, 2014 Latest SHC Speaks blog post... Reserve It: Try it before you buy it. http://blog.searsholdings.com/inside-shc/reserve-it-try-it-before-you-buy-it/ Link to comment Share on other sites More sharing options...
jeffmori7 Posted November 17, 2014 Share Posted November 17, 2014 Latest SHC Speaks blog post... Reserve It: Try it before you buy it. http://blog.searsholdings.com/inside-shc/reserve-it-try-it-before-you-buy-it/ I don't know if it will works, but as a person who doesn't like shopping at all, I like that idea. Shoping online is less a pain for me, but having the opportunity to try it rapidly once in store is great too. Link to comment Share on other sites More sharing options...
wisdom Posted November 17, 2014 Share Posted November 17, 2014 http://www.bloomberg.com/news/2014-11-17/sears-s-u-s-appliance-sales-dominance-is-fading-analyst.html?cmpid=yhoo Gary Balter - mkt share in appliances and tools to plunge to 10% each from 28% and 25% right now by 2016. Not sure where he gets his projections from though. Link to comment Share on other sites More sharing options...
merkhet Posted November 17, 2014 Share Posted November 17, 2014 http://www.bloomberg.com/news/2014-11-17/sears-s-u-s-appliance-sales-dominance-is-fading-analyst.html?cmpid=yhoo Gary Balter - mkt share in appliances and tools to plunge to 10% each from 28% and 25% right now by 2016. Not sure where he gets his projections from though. L. Ron Hubbard? Link to comment Share on other sites More sharing options...
Luke 532 Posted November 17, 2014 Share Posted November 17, 2014 http://www.bloomberg.com/news/2014-11-17/sears-s-u-s-appliance-sales-dominance-is-fading-analyst.html?cmpid=yhoo Gary Balter - mkt share in appliances and tools to plunge to 10% each from 28% and 25% right now by 2016. Not sure where he gets his projections from though. I find it amusing that Balter has effectively been increasing his price target on SHLD for as long as I can remember. He's been saying $20 (after he stopped being uber-bullish) and sticks with that arbitrary target even after moves like SHOS, LE, Canada, etc. (see image attached). Link to comment Share on other sites More sharing options...
Luke 532 Posted November 17, 2014 Share Posted November 17, 2014 http://www.bloomberg.com/news/2014-11-17/sears-s-u-s-appliance-sales-dominance-is-fading-analyst.html?cmpid=yhoo Gary Balter - mkt share in appliances and tools to plunge to 10% each from 28% and 25% right now by 2016. Not sure where he gets his projections from though. L. Ron Hubbard? Hah! Link to comment Share on other sites More sharing options...
Luke 532 Posted November 18, 2014 Share Posted November 18, 2014 It looks like Interactive Brokers has already placed SHLD.EX2 in my account and removed cash at $500/right. Did anybody get any over-subscription filled (SHLD.OS2)? If so, what percentage of your original allotment? Link to comment Share on other sites More sharing options...
Sunrider Posted November 18, 2014 Share Posted November 18, 2014 It looks like Interactive Brokers has already placed SHLD.EX2 in my account and removed cash at $500/right. Did anybody get any over-subscription filled (SHLD.OS2)? If so, what percentage of your original allotment? I did - but a very low number - if I recall correctly 20% of what I asked for. Do I need to do anything with these now? Haven't actually looked at the procedure ....? Link to comment Share on other sites More sharing options...
Luke 532 Posted November 18, 2014 Share Posted November 18, 2014 It looks like Interactive Brokers has already placed SHLD.EX2 in my account and removed cash at $500/right. Did anybody get any over-subscription filled (SHLD.OS2)? If so, what percentage of your original allotment? I did - but a very low number - if I recall correctly 20% of what I asked for. Do I need to do anything with these now? Haven't actually looked at the procedure ....? Just sit tight and wait for the warrants and debt to hit your account. Link to comment Share on other sites More sharing options...
wisdom Posted November 18, 2014 Share Posted November 18, 2014 I was told it could take upto 2 weeks for the debt and warrants to show up. But this is Canada. Might be quicker in the US. Link to comment Share on other sites More sharing options...
heth247 Posted November 18, 2014 Share Posted November 18, 2014 I was told it could take upto 2 weeks for the debt and warrants to show up. But this is Canada. Might be quicker in the US. I am in US, but my broker, Scottrade, said the same thing, it may take weeks or even a month. Link to comment Share on other sites More sharing options...
Guest wellmont Posted November 18, 2014 Share Posted November 18, 2014 I was told it could take upto 2 weeks for the debt and warrants to show up. But this is Canada. Might be quicker in the US. I am in US, but my broker, Scottrade, said the same thing, it may take weeks or even a month. they always say that. the fact is in the US it takes way less than a month usually a matter of days. and shld will likely make an announcement in the next day or two telling you exactly what you can expect to receive if you over subscribed. Link to comment Share on other sites More sharing options...
Luke 532 Posted November 18, 2014 Share Posted November 18, 2014 they always say that. the fact is in the US it takes way less than a month usually a matter of days. and shld will likely make an announcement in the next day or two telling you exactly what you can expect to receive if you over subscribed. They say that as a way to cover their you-know-what. Press release: http://searsholdings.mediaroom.com/index.php?s=16310&item=137332 Link to comment Share on other sites More sharing options...
Luke 532 Posted November 19, 2014 Share Posted November 19, 2014 Sears Holdings Update on Rights Offerings and Liquidity – The Facts http://blog.searsholdings.com/shc-updates/sears-holdings-update-on-rights-offerings-and-liquidity-the-facts/ Link to comment Share on other sites More sharing options...
hillfronter83 Posted November 19, 2014 Share Posted November 19, 2014 did SHLDW start trading? Bloomberg shows some volumn around 15/share but my broker shows bad symbol. Link to comment Share on other sites More sharing options...
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