SHLDQ - Sears Holdings Corp

[Eye4Valu]

I recently went to my local Sears and purchased a new washer and dryer. The store wasn't run down, the salesperson was very helpful, the installation was professional, and the new washer and dryer (Kenmore Elite) work great. It was nothing but a positive experience. I would purchase from Sears again.

[moneyball]

I recently went to my local Sears and purchased a new washer and dryer. The store wasn't run down, the salesperson was very helpful, the installation was professional, and the new washer and dryer (Kenmore Elite) work great. It was nothing but a positive experience. I would purchase from Sears again.

 

Wow I didn’t know Eddie himself frequents this site!

[Eye4Valu]

I’m not even kidding is the funniest part!

[randomep]

I recently went to my local Sears and purchased a new washer and dryer. The store wasn't run down, the salesperson was very helpful, the installation was professional, and the new washer and dryer (Kenmore Elite) work great. It was nothing but a positive experience. I would purchase from Sears again.

 

Wow I didn’t know Eddie himself frequents this site!

 

LMAO, took me about 500 ms to get it.

 

 

[Eye4Valu]

I recently went to my local Sears and purchased a new washer and dryer. The store wasn't run down, the salesperson was very helpful, the installation was professional, and the new washer and dryer (Kenmore Elite) work great. It was nothing but a positive experience. I would purchase from Sears again.

 

Wow I didn’t know Eddie himself frequents this site!

 

LMAO, took me about 500 ms to get it.

 

Why so long?

[Foreign Tuffett]

So the next step in Lampert's quest to keep Sears afloat is to selectively restructure the terms of existing debt? 

 

https://www.barrons.com/articles/tantamount-to-default-why-s-p-cut-sears-credit-rating-1516301872

 

Am I the only one who is in awe of Lampert's ability to navigate the capital markets? It's seemingly only matched by his inability to successfully run a retailer. I don't think SHLD equity will end up having any value, but I don't think anyone can doubt Lampert's determination to keep the company out of bankruptcy.

[peridotcapital]

So the next step in Lampert's quest to keep Sears afloat is to selectively restructure the terms of existing debt? 

 

https://www.barrons.com/articles/tantamount-to-default-why-s-p-cut-sears-credit-rating-1516301872

 

Am I the only one who is in awe of Lampert's ability to navigate the capital markets? It's seemingly only matched by his inability to successfully run a retailer. I don't think SHLD equity will end up having any value, but I don't think anyone can doubt Lampert's determination to keep the company out of bankruptcy.

 

So he wants to swap existing debt for new convertible debt. Why would anyone take him up on this deal? I can't figure out if it is just a last-ditch idea, or if he really thinks he can keep the company out of bankruptcy. On one hand, you can leave that latter possibility in play and hope people will take convertible debt in exchange (to play potential huge upside). On the other hand, maybe he really plans to stay out of the courts (even if it takes his last penny to do it) and he knows that the convertible will pay out over the longer term. Which is it? Is this a sign he does not think he will file BK, or is this entire thing going to finally collapse over the next 12 months and he is running out of options?

 

I don't own any 2019's but I think I am going to sit tight with the existing October 2018's without exchanging. Unless he is now giving up, he should be able to keep going for three more quarters and I don't see how there is equity value here is he burns $1 billion annually for another 2-3 years.

[BeerBBQ]

So the next step in Lampert's quest to keep Sears afloat is to selectively restructure the terms of existing debt? 

 

https://www.barrons.com/articles/tantamount-to-default-why-s-p-cut-sears-credit-rating-1516301872

 

Am I the only one who is in awe of Lampert's ability to navigate the capital markets? It's seemingly only matched by his inability to successfully run a retailer. I don't think SHLD equity will end up having any value, but I don't think anyone can doubt Lampert's determination to keep the company out of bankruptcy.

 

So he wants to swap existing debt for new convertible debt. Why would anyone take him up on this deal? I can't figure out if it is just a last-ditch idea, or if he really thinks he can keep the company out of bankruptcy. On one hand, you can leave that latter possibility in play and hope people will take convertible debt in exchange (to play potential huge upside). On the other hand, maybe he really plans to stay out of the courts (even if it takes his last penny to do it) and he knows that the convertible will pay out over the longer term. Which is it? Is this a sign he does not think he will file BK, or is this entire thing going to finally collapse over the next 12 months and he is running out of options?

 

I don't own any 2019's but I think I am going to sit tight with the existing October 2018's without exchanging. Unless he is now giving up, he should be able to keep going for three more quarters and I don't see how there is equity value here is he burns $1 billion annually for another 2-3 years.

 

Lampert and Berkowitz own about $85% of the 2019 debt. So that will likely be exchanged (otherwise the offer wouldn't be made) and that exchange offer makes sense to me.

 

Lampert/Berkowitz/Tisch own only 16% of the Oct '18 debt.  Since majority of the owners of that debt recently agreed to amend the terms of that debt, it seems that those owners are friendly too Lampert???  (Does the SearsRe or the pension plan own any of the '18 debt).  Its possible that 66% of that debt accepts the exchange offer. 

 

if those assumptions are correct, then they will only save $55m in interest payments this year.  Which is meaningless in terms of annual yearly cash burn. 

 

After the maturity of the 2018 term loan was extended, I fully expected the Oct debt to be paid because there wasn't any debt that matured in front of it that lampert didn't control. I was surprised to see the Oct debt included in their plans for improving terms on non-first lien debt (I assumed that was referencing the 2019 debt since it is controlled by lampert/berkowitz).

 

I also don't understand why the maturity of the Oct debt is being extended to '19 in the exchange offer.  The simple answer is they won't have the money to pay off $300m in Oct '18 debt.  Is that because they can't sell assets because nobody wants them, nobody wants them at the price that lampert is willing to sell, lampert won't sell at prices buyers will accept, they can't be sold because they are encumbered, or nobody will buy due to potential fraudulent conveyance risk?

 

Alternatively, maybe there is a large complex series of asset sales that is being worked on that needs more time and this debt exchange (coupled with the maturity extension of the term loan that was scheduled to mature in June '18) buys the time they need? 

 

If he is giving up, why go through the machinations of the agreement with the PBGC, 2018 term loan maturity extension, continued loans backed by real estate, and this debt exchange?  I don't think he is giving up.  Looks like a continuation of an out of court restructuring with parties that are for the most part amenable to it. Does "optionally convertible by the holders thereof" mean that the convertible debt holders could convert to equity at any time and regardless of where stock price is? if so, then $730m of principal amount potentially due in '19 wouldn't have to be paid .  At this point, why wouldn't those owners do that?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Liberty]

Sears' market cap is getting ever closer to what what Eddie paid for his Yacht  :-\

 

https://www.superyachtfan.com/yacht-fountainhead.html

[peridotcapital]

So the next step in Lampert's quest to keep Sears afloat is to selectively restructure the terms of existing debt? 

 

https://www.barrons.com/articles/tantamount-to-default-why-s-p-cut-sears-credit-rating-1516301872

 

Am I the only one who is in awe of Lampert's ability to navigate the capital markets? It's seemingly only matched by his inability to successfully run a retailer. I don't think SHLD equity will end up having any value, but I don't think anyone can doubt Lampert's determination to keep the company out of bankruptcy.

 

So he wants to swap existing debt for new convertible debt. Why would anyone take him up on this deal? I can't figure out if it is just a last-ditch idea, or if he really thinks he can keep the company out of bankruptcy. On one hand, you can leave that latter possibility in play and hope people will take convertible debt in exchange (to play potential huge upside). On the other hand, maybe he really plans to stay out of the courts (even if it takes his last penny to do it) and he knows that the convertible will pay out over the longer term. Which is it? Is this a sign he does not think he will file BK, or is this entire thing going to finally collapse over the next 12 months and he is running out of options?

 

I don't own any 2019's but I think I am going to sit tight with the existing October 2018's without exchanging. Unless he is now giving up, he should be able to keep going for three more quarters and I don't see how there is equity value here is he burns $1 billion annually for another 2-3 years.

 

Lampert and Berkowitz own about $85% of the 2019 debt. So that will likely be exchanged (otherwise the offer wouldn't be made) and that exchange offer makes sense to me.

 

Lampert/Berkowitz/Tisch own only 16% of the Oct '18 debt.  Since majority of the owners of that debt recently agreed to amend the terms of that debt, it seems that those owners are friendly too Lampert???  (Does the SearsRe or the pension plan own any of the '18 debt).  Its possible that 66% of that debt accepts the exchange offer. 

 

if those assumptions are correct, then they will only save $55m in interest payments this year.  Which is meaningless in terms of annual yearly cash burn. 

 

After the maturity of the 2018 term loan was extended, I fully expected the Oct debt to be paid because there wasn't any debt that matured in front of it that lampert didn't control. I was surprised to see the Oct debt included in their plans for improving terms on non-first lien debt (I assumed that was referencing the 2019 debt since it is controlled by lampert/berkowitz).

 

I also don't understand why the maturity of the Oct debt is being extended to '19 in the exchange offer.  The simple answer is they won't have the money to pay off $300m in Oct '18 debt.  Is that because they can't sell assets because nobody wants them, nobody wants them at the price that lampert is willing to sell, lampert won't sell at prices buyers will accept, they can't be sold because they are encumbered, or nobody will buy due to potential fraudulent conveyance risk?

 

Alternatively, maybe there is a large complex series of asset sales that is being worked on that needs more time and this debt exchange (coupled with the maturity extension of the term loan that was scheduled to mature in June '18) buys the time they need? 

 

If he is giving up, why go through the machinations of the agreement with the PBGC, 2018 term loan maturity extension, continued loans backed by real estate, and this debt exchange?  I don't think he is giving up.  Looks like a continuation of an out of court restructuring with parties that are for the most part amenable to it. Does "optionally convertible by the holders thereof" mean that the convertible debt holders could convert to equity at any time and regardless of where stock price is? if so, then $730m of principal amount potentially due in '19 wouldn't have to be paid .  At this point, why wouldn't those owners do that?

 

Really good points. I thought for sure he was not giving up for the same reasons you stated, but the convertible part did not seem to fit on the surface. But you are right...  if you owned the 2019 unsecured, you might see the equity convert as a decent option given how much "stuff" is ahead of you in line. The remaining 2018's might actually make even more sense now than a week ago if there really are takers who own that paper...

[Foreign Tuffett]

Lampert is still "fighting like hell."

 

[Picasso]

My guess is SHLD will need to adjust the terms of the exchange. At the current equity price the 2019 notes only have $30 of value when exchanging into equity. The 2018 notes only have maybe $50 of value. What would be the motivation for anyone to take a PIK in exchange for worthless equity options? Even with implied vol where it's at it's a meh offer. Maybe Lampert would since he probably doesn't care about the coupon payment but it doesn't really make the current situation that much better.

 

If I were Lampert I'd have done some kind of equity exchange offer that would unambiguously buy the company 2-3 years. You would probably see the equity rally in that scenario and bondholders would happily take the equity they can sell in the market to recover close to par. Doesn't require all bondholders to take equity, just chunks of the problematic parts of the current capital structure. At a 70% cost of short borrow there would be buyers for that equity since it would spell a certain loss for a short position (forced buying). We've seen this done even recently in the likes of a CHK.

 

The interesting thing is that he didn't use this opportunity to swap debt at less than par to reduce his debt burden. If nothing else he's been fair to his stakeholders if you ignore running the operating business into the ground. A combo of debt reduction + equity issuance could probably be a decent situation for the bondholders given the impact it would have on the equity component of an out-of-court restructuring.

 

Another note: it's possible that some funds have started aggressively shorting the stock since it makes it harder to get a debt exchange done. Doesn't help that Berkowitz has been blowing out millions of shares. It puts pressure on SHLD to make adjustments or get put into bankruptcy. My view is I think he'll get something done here. None of his actions indicate a filing in the short-term.

[Picasso]

Speaking of Berkowitz not helping the bond exchange situation, another 1.5 million shares sold in two days. Clown show...

 

https://www.sec.gov/Archives/edgar/data/1214344/000091957418000689/xslF345X03/p7807547.xml

[sampr01]

Speaking of Berkowitz not helping the bond exchange situation, another 1.5 million shares sold in two days. Clown show...

 

https://www.sec.gov/Archives/edgar/data/1214344/000091957418000689/xslF345X03/p7807547.xml

Thanks for the color. He is also selling SRG and may be don’t want to associate with EL any more.

[frommi]

Speaking of Berkowitz not helping the bond exchange situation, another 1.5 million shares sold in two days. Clown show...

 

https://www.sec.gov/Archives/edgar/data/1214344/000091957418000689/xslF345X03/p7807547.xml

Thanks for the color. He is also selling SRG and may be don’t want to associate with EL any more.

 

To me this just looks like his fund is overrun by redemptions. Probably exactly at the wrong time, and i think that this forced selling has created or is creating opportunities. Maybe not in SHLD (too hard for me) but at least in SRG.

[sampr01]

Speaking of Berkowitz not helping the bond exchange situation, another 1.5 million shares sold in two days. Clown show...

 

https://www.sec.gov/Archives/edgar/data/1214344/000091957418000689/xslF345X03/p7807547.xml

Thanks for the color. He is also selling SRG and may be don’t want to associate with EL any more.

 

To me this just looks like his fund is overrun by redemptions. Probably exactly at the wrong time, and i think that this forced selling has created or is creating opportunities. Maybe not in SHLD (too hard for me) but at least in SRG.

 

He is buying JOE, selling SHLD and SRG... may be nothing to do with redemptions

[doughishere]

Maybe Eddie should have practiced first: https://www.bloomberg.com/features/american-mall-game/

[Matson125]

Did they sell 30,000 and keep 120,000?

 

From the Vornado conference call held today:

 

What made this deal unique is that we bought back the floor from Kmart who had 18 years remaining on their lease at $33.50 per square foot. This is the first deal we've done with Kmart and Kmart still has 82,000 square feet at 770 Broadway and 141,000 square feet at One Penn Plaza at the same low rents.

[DTEJD1997]

WOW:

 

SHLD rallied almost 10% today!  Unfortunately, SHLD is still under $2.50 a share!

 

I can't think of a K-Mart store that is still open AND within a reasonable driving distance.

There are still some Sears stores that are open, along with Sears auto...

 

I would think that at this point, the odds are against SHLD making it to Christmas 2018.

 

What a calamity...

[BeerBBQ]

For those who accept the exchange offer, what happens if the stock is still trading around $2.75 when the principal comes due? Can the principal be repaid in stock (in kind like interest payments), can the convert owner choose to have shares issued in lieu of cash, or will the company have to pay principal in cash?

 

[paperwerks]

“The real estate is worth $150 per share” lol

[scorpioncapital]

It is, but it got transferred to SRG :)

 

[doughishere]

Does Eddie actually gain anything by doing stuff like this? Serious question.

 

https://www.denverite.com/k-marts-dead-now-councilwoman-wants-city-buy-lot-46633/

[walt373]

Some thoughts on SHLD/Fairholme here from Yet Another Value Blog: http://www.yetanothervalueblog.com/2018/02/some-things-and-ideas-february-2018.html

[LR1400]

Some thoughts on SHLD/Fairholme here from Yet Another Value Blog: http://www.yetanothervalueblog.com/2018/02/some-things-and-ideas-february-2018.html

 

 

That is a cool blog. I have never seen it before.

 

Some notes/comments:

 

1. Buffett predicted that Lampert wouldn't succeed precisely because Buffett had also failed in retail.

 

2. Being smart and a good businessman can't save a tough business, more accurately, it usually can't save a tough industry.

 

I am in a shit industry and I know a guy in an adjacent industry who is killing it, I'm smarter than him, yet he's crushing me. Happens a lot. Unfortunately I don't have the power to force an exit from our industry.

 

Too bad Lampert didn't exit. His mistake would then be viewed as just a mistake and he could move on to making money.