tede02 Posted August 3, 2015 Share Posted August 3, 2015 Still don't understand why they don't speed up the liquidation of the company. Why burn up all this cash on a failed retailer? Sell the brands and real estate and get it over with. Link to comment Share on other sites More sharing options...
valueinvestor82 Posted August 3, 2015 Share Posted August 3, 2015 Strangely, Bruce gave a more comprehensive summary of SHLD via the most recent letter for FAAFX instead of FAIRX. Good stuff. Here are his comments: "Mr. Market’s negative outlook on Sears Holdings Corporation (common, warrants, and notes, which comprise 23.4% of the Fund portfolio) dented the company’s stock price in the second quarter, but it has not changed our fundamental thesis one iota. To the contrary, earlier this month the company completed a separation transaction of 235 properties, plus joint venture interests in 31 additional properties, for $3.1 billion in cash proceeds. For a company with a current market capitalization of $2.4 billion, a cash infusion of that magnitude is rather noteworthy, but seemingly disregarded by the market. This sale should provide visibility to the substantial value that Sears retains in its 430 owned properties and 1,031 leased properties, particularly because the remaining locations bear very similar characteristics to those that were spun off. Eventually, market participants will find these facts indisputable. An astute analyst will also discover that the company’s non-real estate assets have significant value as well. Indeed, we believe these assets – cash, receivables, and net inventory; leading brands such as Kenmore, Craftsman, and DieHard; an integrated retail platform and Shop Your Way loyalty program that generates 70% of the company’s revenues; the largest national delivery and home repair service in America; an e-commerce and logistics solutions business; coast-to-coast auto centers for repair and maintenance; and a product protection business, to name a few – easily offset the company’s liabilities. We are encouraged by the accelerating pace of Sears’ transformation from a traditional store-based retailer to a membership company offering an integrated retail platform, and believe that the following excerpt from the company’s Q1 2015 public filing is worth highlighting: The Company expects to recognize a significant gain upon completion of this [separation] transaction, which will also trigger a significant tax benefit that would be realized on the deferred taxes related to indefinite-life assets related to the property sold to the REIT, in amounts indeterminable at this time . . . With the expected completion of the REIT transaction and the amendment and extension of our Domestic Credit Facility, we expect to have successfully enhanced our financial flexibility, recapitalized our balance sheet and secured a solid financial foundation to accelerate the investment in our transformation . . . As we progress in our transformation, we are primarily focusing on profitability instead of revenues, market share and other metrics which relate to, but do not necessarily drive profit . . . We believe that our focus on profitability will contribute to a meaningful performance in 2015 and beyond." Link to comment Share on other sites More sharing options...
tede02 Posted August 3, 2015 Share Posted August 3, 2015 I own a significant amount of FAIRX, so I have a vested interest in the success of Sears. I also have some insight as my youngest sister, who is in college, worked in one of the retail outlets in recent years (though I recognize this is anecdotal evidence). My personal view is anyone who thinks this company is "turning around" the retail operation is delusional. I just shake my head driving by the Sears locations in the Twin Cities area. The parking lots are empty, even in shopping areas that are very nice, surrounded by other retailers that are busy. Link to comment Share on other sites More sharing options...
peridotcapital Posted August 3, 2015 Share Posted August 3, 2015 I know retail ops are shrinking and that is the strategy but this still surprised me -- On the retail operations side - per Rob Wilson (retail analyst) - SHLD has now reported negative comparable sales for 52 of the 58 quarters since FY 2001 for Sears :o :o Not only that: 1) Since the 2005 merger, Sears and Kmart have had positive SSS during the same quarter only 1 time 2) Since the 2005 merger, Sears has had 1 quarter of positive 1% SSS, whereas Kmart has had 3 What's funny is that Eddie is now saying that the company is going to accelerate their transformation by focusing on profitability and not same store sales. So those past results were a result of them focusing on same store sales. Yeah... Eddie knows what he is doing... :) Link to comment Share on other sites More sharing options...
constructive Posted August 3, 2015 Share Posted August 3, 2015 An astute analyst will also discover that the company’s non-real estate assets have significant value as well. Indeed, we believe these assets – cash, receivables, and net inventory; leading brands such as Kenmore, Craftsman, and DieHard; an integrated retail platform and Shop Your Way loyalty program that generates 70% of the company’s revenues; the largest national delivery and home repair service in America; an e-commerce and logistics solutions business; coast-to-coast auto centers for repair and maintenance; and a product protection business, to name a few – easily offset the company’s liabilities. There is a very basic problem here. Berkowitz is attributing value to things which are not monetizable. There is no point in listing all the pieces that are integral to Sears' retail operations. If you insist on counting up these pieces of the company, you need to subtract their impact on retail operations to avoid double counting. It's not rocket science that whenever you spin off something valuable which had a positive impact on earnings, earnings will get worse. Link to comment Share on other sites More sharing options...
adesigar Posted August 3, 2015 Share Posted August 3, 2015 So why would Eddie use a lot of the raised cash to tender the 2018 secured debt? The rate of 6.75% is a lot lower than their recently issued 2019 note. Based on where the debt was trading it doesn't make a ton of sense on the surface, unless he is looking to shift the assets around and needed flexibility? I'm cribbing this from someone else, but basically the 2018 debt requires repayment within 12 months of a large event like the sale-leaseback and the 2019s can be used to exercise payment of the warrants, so that's probably why he is focused on the 2018s and not the 2019s. Do you have a link? There is still 500 million authorized for buyback. At current prices with $1 Billion SHLD could buy back half the company. Maybe the 2018 Senior Secured 6.625% prevent a share buyback or some other asset spinoff ? Link to comment Share on other sites More sharing options...
namo Posted August 3, 2015 Share Posted August 3, 2015 Extract from the 10K: The Senior Secured Notes are guaranteed by certain subsidiaries of the Company and are secured by a security interest in certain assets consisting primarily of domestic inventory and credit card receivables (the "Collateral"). The lien that secures the Senior Secured Notes is junior in priority to the lien on such assets that secures obligations under the Domestic Credit Agreement, as well as certain other first priority lien obligations. The Company used the net proceeds of this offering to repay borrowings outstanding under a previous domestic credit agreement on the settlement date and to fund the working capital requirements of our retail businesses, capital expenditures and for general corporate purposes. The indenture under which the Senior Secured Notes were issued contains restrictive covenants that, among other things, (1) limit the ability of the Company and certain of its domestic subsidiaries to create liens and enter into sale and leaseback transactions and (2) limit the ability of the Company to consolidate with or merge into, or sell other than for cash or lease all or substantially all of its assets to, another person. I don't have the prospectus, so I'll leave it at that. The Credit Facility does explicitly limit buybacks: The Domestic Credit Agreement limits our ability to make restricted payments, including dividends and share repurchases, subject to specified exceptions that are available if, in each case, no event of default under the credit facility exists immediately before or after giving effect to the restricted payment. These include exceptions that require that projected availability under the credit facility, as defined, is at least 15% and an exception that requires that the restricted payment is funded from cash on hand and not from borrowings under the credit facility. The Domestic Credit Agreement also imposes various other requirements, which take effect if availability falls below designated thresholds, including a cash dominion requirement and a requirement that the fixed charge ratio at the last day of any quarter be not less than 1.0 to 1.0. @tede02: Lampert has professed for a quite a while that he's after a transformation rather than a turnaround. Also, some stores at least supposedly see more customers... Link to comment Share on other sites More sharing options...
valuestudent Posted August 4, 2015 Share Posted August 4, 2015 The relevant section is SECTION 4.05. SECTION 4.05: Limitation on Sale and Leaseback Transactions. (a) The Issuer shall not, and shall not permit any Restricted Subsidiary to, enter into any arrangement with any Person providing for the sale by the Issuer or any Restricted Subsidiary of any property more than 180 days following the Issuer’s or such Restricted Subsidiary’s acquisition of such property, with the intention of taking back a lease of such property (a “Sale and Leaseback Transaction”) unless the terms of such sale or transfer have been determined by the Issuer’s Board of Directors to be fair and arm’s-length and either: (i) within 12 months after the receipt of the proceeds of the sale or transfer, the Issuer or any of its Subsidiaries applies an amount equal to the net proceeds of the sale or transfer to the prepayment or retirement of indebtedness (other than any indebtedness that is subordinated to the Notes); or (ii) the Issuer or such Restricted Subsidiary would be entitled, at the effective date of the sale or transfer, to incur indebtedness secured by a Lien on such property (and such Attributable Debt shall be deemed to be secured by a Lien on such property) in an amount at least equal to the Attributable Debt in respect of the Sale and Leaseback Transaction pursuant to Section 4.04. (b) Clause (a) of this Section 4.05 will not apply to any Sale and Leaseback Transaction (i) for a term of not more than three years including renewals; or (ii) between the Issuer and a Subsidiary or between Subsidiaries, provided that the lessor is the Issuer or a wholly owned Subsidiary of the Issuer. Link to comment Share on other sites More sharing options...
ni-co Posted August 4, 2015 Share Posted August 4, 2015 Looks like the RBS and SPE funds were dissolved and their SHLD shares distributed. This is boosting Lampert's direct holdings by ~2.5m shares and ~0.6m warrants. He's now directly holding ~28m of the common and ~6.3m warrants. When I read the SEC forms correctly, there's no change in economic ownership, though. He received his part of the funds' shares. Link to comment Share on other sites More sharing options...
InvestingOnSale Posted August 5, 2015 Share Posted August 5, 2015 Could this be a reason for the big declines in SHLD's price of late? I wonder if some of Lampert's hedge fund clients received SHLD shares and liquidated them. Link to comment Share on other sites More sharing options...
WideMoat Posted August 5, 2015 Share Posted August 5, 2015 Could this be a reason for the big declines in SHLD's price of late? I wonder if some of Lampert's hedge fund clients received SHLD shares and liquidated them. Looks like only 659k shares were distributed to clients... "Of the 3,091,189 shares of Holdings Common Stock that were distributed by the SPEs pursuant to the 10b5-1 Plans, the limited partners of the SPEs received a number of such shares, subject to the 10% holdback reserve, with a value (calculated at the time of the distribution and together with other assets of the SPEs to be distributed to the limited partners) equal to such limited partners’ capital account values as of June 30, 2015 and RBS (and thereafter Mr. Lampert) received the remaining shares. Based on the market prices as of July 30, 2015, 659,284 of such shares were distributed to the limited partners and 2,431,905 of such shares were distributed to RBS (and thereafter Mr. Lampert).” http://www.sec.gov/Archives/edgar/data/923727/000119312515274989/d70062dsc13da.htm Link to comment Share on other sites More sharing options...
merkhet Posted August 6, 2015 Share Posted August 6, 2015 And it looks like it's just the SPE fund and not the RBS fund. Link to comment Share on other sites More sharing options...
krazeenyc Posted August 6, 2015 Share Posted August 6, 2015 Hmmmm.. Edward S. Lampert 08/04/2015 Open Market Purchase 135,190 $ 20.6182 Edward S. Lampert 08/05/2015 Open Market Purchase 242,760 $ 21.057 Link to comment Share on other sites More sharing options...
jeffmori7 Posted August 11, 2015 Share Posted August 11, 2015 Hmmmm.. Edward S. Lampert 08/04/2015 Open Market Purchase 135,190 $ 20.6182 Edward S. Lampert 08/05/2015 Open Market Purchase 242,760 $ 21.057 Lampert keeps buying: http://www.dataroma.com/m/ins/ins.php?t=y&&sym=SHLD&o=fd&d=d Link to comment Share on other sites More sharing options...
adesigar Posted August 17, 2015 Share Posted August 17, 2015 http://finance.yahoo.com/news/sears-holdings-announces-early-tender-110000251.html approximately $935.6 million principal amount of the Notes were validly tendered and not validly withdrawn in the Offer. Is it common in such offers to have a Early Tender Premium? Sears is basically paying $30 million to get the bonds before 2Q earnings release. Link to comment Share on other sites More sharing options...
valueinvestor82 Posted August 27, 2015 Share Posted August 27, 2015 Serious question- so SHLD was about 110% short (percentage of float) as of 8/15. If we look at some of the more exciting squeezes over the last decade, did they reach astronomical levels primarily due to shorts having to buy from each other to cover, longs exiting, or some combo? I want to better understand the mechanics. Squeeze away, this could get exciting at some point. Link to comment Share on other sites More sharing options...
GCA Posted September 8, 2015 Share Posted September 8, 2015 People have all sorts of ideas about what "float" means for SHLD, so you have to be careful. Often times I hear people describing SHLD's float basically as, "all the shares held by investors whose names I don't immediately recognize." For example, it's not entirely clear to me why Fairholme's/Berkowitz's shares wouldn't be included in free float (and a good number of people exclude shares held by other firms such as Horizon). What, like Berkowtiz would never sell under any conditions? Although long term, he is an investor and does occasionally sell shares. He currently has no choice but to sell something as his funds have to meet redemptions (though so far he has not elected to sell any SHLD, which is of course meaningful). For example, if SHLD spiked to $45 don't you think a lot of long investors would cough up some of their shares allowing shorts to cover? Anyways, if you are saying there will be a short squeeze if shares sold short exceed Bruce+Eddie shares, you would also have to say that both investors would recall all their shares that they had previously been lending. That kind of coordinated action, which would obviously be undertaken in order to intentionally cause a short squeeze, smacks of manipulation and I don't think the exchange authorities (to say nothing of the SEC) would take kindly, especially since there is already heightened scrutiny on Eddie at least. I don't know about anyone else but I feel like its pretty easy for people to get over-excited about the prospect of an epic short squeeze. Link to comment Share on other sites More sharing options...
GCA Posted September 8, 2015 Share Posted September 8, 2015 Also, random, but thanks to all those on the board a few weeks ago (Randallchsu and Scudbucket) who advised on the updated Warrant strike of $25.686. I had calculated something close on my own but was thrown off because I had checked Bloomberg and contacted Nasdaq and Fidelity (through an official corporate actions inquiry) who all wrongly advised me that the strike was still the original price of $28.41. This board was the only place I could find that thought the ex price had adjusted down. Given the conflicting information I decided to waste a little money to find out from the ultimate source... by actually exercising one of them. Of course it was exercised at $25.686 Bottom line: COBF message board > Bloomberg + Nasdaq + Fidelity Amusingly, after I exercised my one share, BBG updated their ex price and Fidelity and Nasdaq sent out an update notifying people of the updated ex price.... AND that was about the time Berkowitz went out and purchase a few thousand warrants. I basically should have trusted you guys and just bought some while the mis-information was still out there. So many thanks again to all who comment (especially Peridot and Krazee who are always insightful, even when they disagree)... been following y'all for a long time and finally decided to pony up cash so I can join in. Link to comment Share on other sites More sharing options...
valueinvestor82 Posted September 8, 2015 Share Posted September 8, 2015 Thanks for your thoughts, GCA. Not a confidence-inspiring experience with the large brokers, is it? Let me restate my initial question. I wasn't wanting to know if a short squeeze was overstated or not, I was wondering what criteria allowed prior squeezes to be so significant. Thanks in advance to those who can share insight. I participated (and sold) the Baker Street squeeze and I've traded the stock 2x since then, making money each time. Link to comment Share on other sites More sharing options...
adesigar Posted September 8, 2015 Share Posted September 8, 2015 Thanks for your thoughts, GCA. Not a confidence-inspiring experience with the large brokers, is it? Let me restate my initial question. I wasn't wanting to know if a short squeeze was overstated or not, I was wondering what criteria allowed prior squeezes to be so significant. Thanks in advance to those who can share insight. I participated (and sold) the Baker Street squeeze and I've traded the stock 2x since then, making money each time. Firstly the 110% shares short from your earlier post is miscalculated. I know ive seen it on some site as well but their ownership info was wrong. Do you have a link? Secondly I don't think you can count the shares in Fairholme's managed accounts as not available. They get lumped together with the shares held in FAIRX, FAAFX. Finally people seem to ignore the warrants. It always possible to convert warrants to shares so 15 million shares short when there were 106 million shares is not the same as 15 million shares short with 106 million shares and 20+ million warrants(I know ESL+Fairholme hold the majority of them but not all) Prior squeezes were caused by Lands End Spin Off and SHOS and SRG Rights. But I don't think something similar will happen in the near future. On the other hand positive indications are 1. Eddie Lampert purchased about 1 million shares in the open market. If im right its been almost 3 years since he did open market purchases. 2. Berkowitz has been buying the Warrants(not shares) for managed accounts. He also has SHLD at 20% of FAAFX. Just adding a link into the post about more investment in Technology. http://articles.economictimes.indiatimes.com/2015-08-20/news/65667224_1_technology-centre-first-development-centre-pune-centre Link to comment Share on other sites More sharing options...
Against the crowd Posted September 9, 2015 Share Posted September 9, 2015 Can somebody help me understand the potential benefits ....if any Sears can get from its recent deal with PBGC. Not clear what is the potential impact of this. Does it means that their pension payments will become more predictable over next 5 years...If yes..than what will be the quantum of those payments. Will be same, lower or higher than what they have projected in their Q2-2015 presentation. Any insight will be helpful. Link to comment Share on other sites More sharing options...
adesigar Posted September 9, 2015 Share Posted September 9, 2015 Can somebody help me understand the potential benefits ....if any Sears can get from its recent deal with PBGC. Not clear what is the potential impact of this. Does it means that their pension payments will become more predictable over next 5 years...If yes..than what will be the quantum of those payments. Will be same, lower or higher than what they have projected in their Q2-2015 presentation. Any insight will be helpful. From what I understand the PBGC got nervous about the spinoff and wants SHLD to protect specific Special Purpose Entities which could be used to pay for the Pension shortfall in case they don't make the contribution. I don't think the pension payments will be more predictable. The pension payments are based on the interest rates and actuarial tables. If/When interest rates rise the pension liability should decrease. Link to comment Share on other sites More sharing options...
valueinvestor82 Posted September 9, 2015 Share Posted September 9, 2015 What spinoff? SHLD sold the 230 or so properties to a REIT and allowed us to participate via a rights offering. I shiver every time I hear "spinoff" because I think that's one of the core misunderstandings that people hold about SHLD Nd helped to justify the plummeting stock price, which wasn't justified at all given that they received twice as much cash as the property value was listed on the balance sheet. Link to comment Share on other sites More sharing options...
adesigar Posted September 9, 2015 Share Posted September 9, 2015 What spinoff? SHLD sold the 230 or so properties to a REIT and allowed us to participate via a rights offering. I shiver every time I hear "spinoff" because I think that's one of the core misunderstandings that people hold about SHLD Nd helped to justify the plummeting stock price, which wasn't justified at all given that they received twice as much cash as the property value was listed on the balance sheet. Yes but you need to explain that to Mr Market. The Market (and my guess is PBGC) is treating it as a spin off. Before the rights SHLD was around $40 per share it lost (at one point) almost as much in market cap as SRG. I guess even though the properties were independently valued that there could be hidden value and that SHLD shareholders did not get full value for the properties. Personally I sold all my SRG at $39 and bought more SHLD around $21. Time will tell if that was a dumb move. Link to comment Share on other sites More sharing options...
GCA Posted September 11, 2015 Share Posted September 11, 2015 Can somebody help me understand the potential benefits ....if any Sears can get from its recent deal with PBGC. Not clear what is the potential impact of this. Does it means that their pension payments will become more predictable over next 5 years...If yes..than what will be the quantum of those payments. Will be same, lower or higher than what they have projected in their Q2-2015 presentation. Any insight will be helpful. Agree with what was said before, it doesn't make their pension contributions any more predictable (although I think minimum contributions at least were already determined by a formula and therefore already predictable). Basically the PBGC is also worried about Sears' solvency and this what is what Sears has to do (give them a lien on the 125 stores and KCD rights in Sears Re) to make them calm down. For its part, the PBGC says they won't freak out and involuntarily terminate the plan. Kind of like how every so often Sears' suppliers freak out about getting paid and then Sears has to do something to calm then down. Not too meaningful IMHO Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now