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SHLDQ - Sears Holdings Corp


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It's official, Sears files for Chapter 11 bankruptcy.

 

It only took 9,195 posts! What a wild, predictable, yet irrationally hopeful ride.

 

SHLD is not the only name. If you sort by replies on the investment ideas page, below is page 1. (Page 2 is similar). There are winners here as well!

Vigorous debate over value or "pounding in what you shout out - Munger" ?

 

BAC-WT - Bank of America Warrants 

ALS.TO - Altius Minerals 

AAPL - Apple Inc. 

VRX - Valeant Pharmaceuticals International Inc.

BBRY - Blackberry (Formerly RIM)

FCAU - Fiat Chrysler Automobiles 

FGE.to - Fortress Paper (formerly FTP.to) 

BH - Biglari Holdings 

TSLA - Tesla Motors 

AMZN - Amazon.com Inc. 

AIG - American International Group 

GOOGL - Google 

SD - SandRidge Energy

 

That's an interesting list. I've participated in Altius, Fiat, and Fortress. Altius I'm up slightly (but below my average portfolio performance). Fiat I held for a short time around the Ferrari spin for good results, and I was pleased with my Fortress position in the debs. I think I did an options trade once in SHLD but it was small and short term. Other than that never taken any position. Not buying BAC when there were folks pounding the table here the second time around (2014 or so?) is probably high on my list of mistakes.

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It's official, Sears files for Chapter 11 bankruptcy.

 

It only took 9,195 posts! What a wild, predictable, yet irrationally hopeful ride.

 

SHLD is not the only name. If you sort by replies on the investment ideas page, below is page 1. (Page 2 is similar). There are winners here as well!

Vigorous debate over value or "pounding in what you shout out - Munger" ?

 

BAC-WT - Bank of America Warrants 

ALS.TO - Altius Minerals 

AAPL - Apple Inc. 

VRX - Valeant Pharmaceuticals International Inc.

BBRY - Blackberry (Formerly RIM)

FCAU - Fiat Chrysler Automobiles 

FGE.to - Fortress Paper (formerly FTP.to) 

BH - Biglari Holdings 

TSLA - Tesla Motors 

AMZN - Amazon.com Inc. 

AIG - American International Group 

GOOGL - Google 

SD - SandRidge Energy

 

That's an interesting list. I've participated in Altius, Fiat, and Fortress. Altius I'm up slightly (but below my average portfolio performance). Fiat I held for a short time around the Ferrari spin for good results, and I was pleased with my Fortress position in the debs. I think I did an options trade once in SHLD but it was small and short term. Other than that never taken any position. Not buying BAC when there were folks pounding the table here the second time around (2014 or so?) is probably high on my list of mistakes.

 

A great list.  I've owned but sold BH (from the SNS days, sold shortly after the name change), and TSLA (bought in the 100s sold some in the 260s and the rest above 300 during the recent crazyness).  I bought and still hold BAC warrants(bought at $4 and change, sold half recently above $19 and still hold the other half), APPL (bought in 2013-2015 and still hold all of it), and AMZN (didn't buy until 2016 still hold all of it).

 

My first post to the sears thread is quoted below (message #30) and I still stand by what I said then in 2012.  Sears website and online capabilities were and have been awful. They should have been closing under performing stores, selling real estate and making their website priority #1.  Why I waited until 2016 to finally buy Amazon, I don't know?  I don't listen very well sometimes, not even to myself. 

 

I don't own AMZN or SHLD, but I agree with you about AMZN.  I live in New Hampshire where there is no sales tax online or off and I find it easier to use Amazon.com rather than go to a physical store.  What does Sears have that is so compelling that I am going to actually physically go there when I don't have to?  This is a problem with any physical store without a strong online presence I think.  Even groceries we use PeaPod.com and get it delivered to our door.  Why people spend their lives driving from place to place to get these things done when it is no longer necessary I'll never understand.  Certainly the kids today will grow up and think it is oddly quaint that some older folks still like to drive around from place to place to place and aimlessly shop for things, never getting exactly what they want, but instead needing to settle for whatever the place they happen to be has in stock.

 

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Anyone have any thoughts on the debt here? There have been lots of good comments on the debt scattered throughout this monster thread, but things have obviously changed now...

 

IBKR has SRAC debt (the '32s) quoted at $40/$100 on the ask, which is honestly  bit higher than I was expecting to see given the circumstances.

 

Although my (potentially very wrong!) understanding is that SRAC has first call on value of the inventory, so there should be some value there.

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Anyone have any thoughts on the debt here? There have been lots of good comments on the debt scattered throughout this monster thread, but things have obviously changed now...

 

IBKR has SRAC debt (the '32s) quoted at $40/$100 on the ask, which is honestly  bit higher than I was expecting to see given the circumstances.

 

Although my (potentially very wrong!) understanding is that SRAC has first call on value of the inventory, so there should be some value there.

 

I'm looking at the senior secured October 15 2018 bonds, but they went through an exchange and Im not sure on the new and old CUSIP and what the implications are for a retail holder if I get the "wrong" one.

 

I think the bonds could do quite well against where they are priced right now. Even the unsecured 2019's.

 

With some rough guesstimates (the absolute roughest....), if the remaining retail stores are valued at $3b then I think Assets are up to 69% of Liabilities so some bonds could do quite well. Plus the 2019s may pick up some equity stake on the reorganized Sears. You also have advocacy from Berkowitz to do all the fighting for you.

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Great quote on Sears bankruptcy:

 

Nobody should be surprised by the Sears bankruptcy "unless they own a few Zayre or E.J Korvette locations trapped in a space-time continuum where the Sansabelt clad relax on shag carpeting, illuminated by the warm glow of a lava lamp while they drink Tang and vodka and listen to The Moody Blues," Conforti said.

 

https://www.cnn.com/2018/10/15/business/sears-kmart-real-estate-reits/index.html

 

Cheers!

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Anyone have any thoughts on the debt here? There have been lots of good comments on the debt scattered throughout this monster thread, but things have obviously changed now...

 

IBKR has SRAC debt (the '32s) quoted at $40/$100 on the ask, which is honestly  bit higher than I was expecting to see given the circumstances.

 

Although my (potentially very wrong!) understanding is that SRAC has first call on value of the inventory, so there should be some value there.

 

SRAC bonds are unsecured (though I believe they are guaranteed by the parent - but someone should fact check this).

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Anyone have any thoughts on the debt here? There have been lots of good comments on the debt scattered throughout this monster thread, but things have obviously changed now...

 

IBKR has SRAC debt (the '32s) quoted at $40/$100 on the ask, which is honestly  bit higher than I was expecting to see given the circumstances.

 

Although my (potentially very wrong!) understanding is that SRAC has first call on value of the inventory, so there should be some value there.

 

I'm looking at the senior secured October 15 2018 bonds, but they went through an exchange and Im not sure on the new and old CUSIP and what the implications are for a retail holder if I get the "wrong" one.

 

I think the bonds could do quite well against where they are priced right now. Even the unsecured 2019's.

 

With some rough guesstimates (the absolute roughest....), if the remaining retail stores are valued at $3b then I think Assets are up to 69% of Liabilities so some bonds could do quite well. Plus the 2019s may pick up some equity stake on the reorganized Sears. You also have advocacy from Berkowitz to do all the fighting for you.

 

I own the '18s (bought them before they tanked sadly), and I also was wondering that, but I think only the "old 18's" are traded, can't find a cusip for the new ones. So the one you saw was likely the old one. They have several CUSIPs but one of them is the more liquid one - 812350AE6, closed today at $23

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Is that $23 a price per $100? If so I have no comprehension of why they would be cheaper than the SRAC debt. Aren't they secured vs the SRAC is unsecured?

 

I'm seeing some old posts various places that suggest the SRAC might be structurally senior to hold co debt because it has a guarantee from opco, which is the entity that owns all the assets directly. That could explain the price difference.

 

I was thinking their might be forced selling in the SRAC '32 as the SSRAP stake is required to liquidate in 30 days from the bankruptcy. JP Morgan might just sell it to themselves at the lowest price in the 30 day period, but even then I'd think they'd want to sell it on which should put some supply into the market lowering the relative price of those bonds.

 

I had stopped reading this thread, but a good bankruptcy is exciting!

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Is that $23 a price per $100? If so I have no comprehension of why they would be cheaper than the SRAC debt. Aren't they secured vs the SRAC is unsecured?

 

I'm seeing some old posts various places that suggest the SRAC might be structurally senior to hold co debt because it has a guarantee from opco, which is the entity that owns all the assets directly. That could explain the price difference.

 

I was thinking their might be forced selling in the SRAC '32 as the SSRAP stake is required to liquidate in 30 days from the bankruptcy. JP Morgan might just sell it to themselves at the lowest price in the 30 day period, but even then I'd think they'd want to sell it on which should put some supply into the market lowering the relative price of those bonds.

 

I had stopped reading this thread, but a good bankruptcy is exciting!

 

I think you might be referring to the posts that mention SRAC is superior to the Unsecured Holdco debt, which I believe is true. The Senior Secured (which are the ones I own) are superior to SRAC as they are secured as you mention. And a correction to my earlier post, SRAC is not guaranteed by Holdings but is guaranteed by Sears Roebuck, whereas the unsecured holdco debt has no guarantors. So yea, not sure why SRAC are trading so high. The '18s are at the last in line for the lien on those assets that secure them, hence they're only at $0.23 on the dollar. There is about $3 billion of debt ahead of them. Even the PIK secured notes that a majority of the original '18 holders swapped into come ahead of the cash '18s. I just finished reading the BK filing. There's a good chart on page 70 illustrating all the guarantees and debts of the various subs.

 

Still trying to learn a lot and figure out what's going to happen. This was my first bond trade ever and unfortunately likely to be a fail, but I agree that it's going to be quite an exciting BK!

 

https://restructuring.primeclerk.com/sears/Home-DocketInfo

 

It's the 3rd attachment in the docket, the one that says:

 

Declaration of Robert A. Riecker Pursuant to Rule 1007-2 of Local Bankruptcy Rules for Southern District of New York (related document(s)1) filed by Ray C Schrock on behalf of Sears Holdings Corporation.

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From the chart (thanks very much for that link!) It looks like SRAC is ahead of the unsecured hold co debt for any value in the opco subs.

 

It also looks to me like there's a chance the 6.625 2L could be undersecured, which from my understanding would make any undersecured portion equal to an unsecured obligation of the same entity. However, SRAC is listed as a guarantor of the 2L, so it seems to me they should be at least equal to the SRAC unsecured debt. If this chart is right, I don't think the 2L is structurally subordinated to the SRAC, and it might even get something from the security package.

 

Interesting. I tried to put in a toehold order for the 6.625 at IB and got an error message. "Negative Yield to Worst" I suppose that's because the maturity date is in the past. Obviously these didn't mature, and I'd still like to buy a toehold, if only to motivate me to keep following/researching this. Sent in a ticket, will see what happens. 

 

 

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Hey all:

 

I am SHOCKED that it took this long for SHLD to enter bankruptcy.  They lasted a LONG time...

 

As for the "analysts" who thought SHLD was a buy at various prices...I wonder if they actually ever shopped at Sears or Kmart?  Did they go there to buy tennis shoes or workout clothes?  Did they go there to get bathroom supplies?  Gardening equipment?  Or did they simply come up with some fanciful "valuation story" in their head?

 

 

 

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The whole Sears thing has evolved into a truly sad story. I just hope that those of my fellow board members here on CoBF who actually invested in SHLD got out without too deep wounds and scars.

 

Would just like to note after years and years of burned, SRAC notes on the day of filing are higher than at many points (certainly not average though) throughout the last 12 years you could have bought them.

 

As many upthread noted, the common was not the way to play the RE Thesis for most of the duration this stock has been under discussion.

 

The irony of how I pitched SRAC notes as superior to '19 holdco (unsecured) 50x on this thread even though market prices were inverted... and that now the holdco secured are trading below SRAC... and unsecured are 1/3 of SRAC.

 

Fun with capital structures, version 17.9 of Sears.

 

My theory on Secured trading below SRAC is tax loss selling... the docket seems to confirm that they are parity basically (maybe better, but not by much) than SRAC... so they shouldn't trade at a big discount.

 

I own some '18's (secured)....sadly... as basis is $90 (!) and just dipped toe in recently!  Not sure if there is a real high probability way to play it, but the '18's looks like the best deal right now.

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\

My theory on Secured trading below SRAC is tax loss selling... the docket seems to confirm that they are parity basically (maybe better, but not by much) than SRAC... so they shouldn't trade at a big discount.

How do you conclude "maybe better, but not by much". Secured has security plus guarantees across the board including SRAC. SRAC bonds have no guarantees other than SRAC. Seems to be a lot more to the company than just SRAC. Would appreciate to see how you get to that conclusion?

 

They are only secured by inventory and credit card receivables. Those are great, and filing before Christmas probably improves the recovery on the inventory through liquidation. However, there are lots of layers in the stack above them for that same collateral, including the majority of the bonds that Eddie restructured earlier to give them priority claims over those assets.

 

If the collateral that makes them secured doesn't cover the value of those claims, then they are unsecured obligations to the extent they aren't covered by collateral. Any unsecured portion appears to me to be equal to the SRAC debt in priority.

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The whole Sears thing has evolved into a truly sad story. I just hope that those of my fellow board members here on CoBF who actually invested in SHLD got out without too deep wounds and scars.

 

A lot can be said about Lampert and Sears. We can count all the cognitive biases that Eddie suffered from and laugh at how he overestimated his retail prowess and how his hedgie arrogance filled him with overconfidence.

Sure, seeing the first hedge fund manager to earn over $1 billion in a year annihilate his legacy is bound to invoke a decent amount of schadenfreude. At the same time, I doubt that many people were forecasting how 2008 would turn out in 2006. Hell, even in 2008 Sears was being lauded for repurchasing $678 million worth of shares at an average price of more than $65 during that year.

 

I wonder, if in 2013 when he chose to take on the CEO role, how doable it would have been for him to head in the other direction. How easily could he have distanced himself from the company and wound down his position? Probably not easy but doable.

 

In some way, I do see the honour in doing what he did and remaining on deck until the water reached his boots. I imagine that after all the financial engineering of the last decade, he’s now set himself up for a decade of litigation from the Sears Pension Fund and other claimants.

 

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I got a (unhelpful) reply from IB saying that if the order is rejected I can't buy these. Which is ridiculous.

 

Anyone have any suggestions for getting the system to let me do it?

 

Call them.  They will need to code them in the system as trading flat, and then you should be able to buy.  May take a few days.

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The whole Sears thing has evolved into a truly sad story. I just hope that those of my fellow board members here on CoBF who actually invested in SHLD got out without too deep wounds and scars.

 

Would just like to note after years and years of burned, SRAC notes on the day of filing are higher than at many points (certainly not average though) throughout the last 12 years you could have bought them.

 

As many upthread noted, the common was not the way to play the RE Thesis for most of the duration this stock has been under discussion.

 

The irony of how I pitched SRAC notes as superior to '19 holdco (unsecured) 50x on this thread even though market prices were inverted... and that now the holdco secured are trading below SRAC... and unsecured are 1/3 of SRAC.

 

Fun with capital structures, version 17.9 of Sears.

 

My theory on Secured trading below SRAC is tax loss selling... the docket seems to confirm that they are parity basically (maybe better, but not by much) than SRAC... so they shouldn't trade at a big discount.

 

I own some '18's (secured)....sadly... as basis is $90 (!) and just dipped toe in recently!  Not sure if there is a real high probability way to play it, but the '18's looks like the best deal right now.

 

I need to read the secured Oct. 18's prospectus again, but it looks to be guaranteed by one of the subs, not hold co. But the guarantee may pass through to hold co or I could be wrong.

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The whole Sears thing has evolved into a truly sad story. I just hope that those of my fellow board members here on CoBF who actually invested in SHLD got out without too deep wounds and scars.

 

A lot can be said about Lampert and Sears. We can count all the cognitive biases that Eddie suffered from and laugh at how he overestimated his retail prowess and how his hedgie arrogance filled him with overconfidence.

Sure, seeing the first hedge fund manager to earn over $1 billion in a year annihilate his legacy is bound to invoke a decent amount of schadenfreude. At the same time, I doubt that many people were forecasting how 2008 would turn out in 2006. Hell, even in 2008 Sears was being lauded for repurchasing $678 million worth of shares at an average price of more than $65 during that year.

 

I wonder, if in 2013 when he chose to take on the CEO role, how doable it would have been for him to head in the other direction. How easily could he have distanced himself from the company and wound down his position? Probably not easy but doable.

 

In some way, I do see the honour in doing what he did and remaining on deck until the water reached his boots. I imagine that after all the financial engineering of the last decade, he’s now set himself up for a decade of litigation from the Sears Pension Fund and other claimants.

 

Yes, Gísli,

 

It took me a few years to understand that the fundamental criterias for a successful investment was basically [if you look at the investment "as is"]:

 

1. Cash flow generation, combined with

2. Capital allocation.

 

#1 is the basis for #2, otherwise #2 is not relevant at all.

 

One can do "adjusted "this"" and "adjusted "that"" with regard to measuring earnings and return on capital, but the fact is, that cash flow statements do not lie.

 

- - - o 0 o - - -

 

And yes, Mr. Lampert has now spent about 14 years on this, most likely it'll be a long time for the whole thing to settle for him, before he can move ahead. Basically, I also think that he has now totally lost his access to capital, aside from his own. In that regard, I suppose he's now as much a dead rotten herring as Mr. Cohen [without making any other kind of comparison here, in any way].

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I think there's alot to be said for Sears, that hasn't been said lately.  Frankly a business surviving 130+ years is worth noting, and in it's hey day, Sears was a beast of a retailer with cash gushing from its coffers.  The demise of Sears falls squarely on Lampert's shoulders.  Unlike other retailers, he put in as little capital as he could into the departments stores, was turtle slow when it came to selling off underperforming stores, and didn't exploit the redevelopment of sites to unleash commercial/retail potential until it was too late.  All the while, plowing cash from sold assets into buying back overpriced stock in a declining, neglected retail business. 

 

My family and I used to shop at Sears all the time 20-30-40 years ago...then we completely stopped about 10 years ago when the stores started to look like bare warehouses and you couldn't find a salesperson or cashier.  I actually disagree with Warren's quote regarding a good manager and poor business when it comes to Sears...I think the good manager led to an early demise...how else do you explain Macy's, Kohls and Nordstrom's doing perfectly fine while Sears is no more.  Cheers!

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I think there's alot to be said for Sears, that hasn't been said lately.  Frankly a business surviving 130+ years is worth noting, and in it's hey day, Sears was a beast of a retailer with cash gushing from its coffers.  The demise of Sears falls squarely on Lampert's shoulders.  Unlike other retailers, he put in as little capital as he could into the departments stores, was turtle slow when it came to selling off underperforming stores, and didn't exploit the redevelopment of sites to unleash commercial/retail potential until it was too late.  All the while, plowing cash from sold assets into buying back overpriced stock in a declining, neglected retail business. 

 

My family and I used to shop at Sears all the time 20-30-40 years ago...then we completely stopped about 10 years ago when the stores started to look like bare warehouses and you couldn't find a salesperson or cashier.  I actually disagree with Warren's quote regarding a good manager and poor business when it comes to Sears...I think the good manager led to an early demise...how else do you explain Macy's, Kohls and Nordstrom's doing perfectly fine while Sears is no more.  Cheers!

 

I think the biggest issue with Sears is that it was no longer a desirable option for individual products(specialty, niche, like kitchen/garden stuff) nor was it a good enough option collectively(ala not the best at one but had enough of everything to make it time efficient). I see the same fate for JCP.

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