SHLDQ - Sears Holdings Corp

[Mephistopheles]

For sure, lots of assumptions necessary. However, Seritage got $13.5 MM for 4 non big city KMart locations. I doubt unencumbered properties are crappier than those, so $3.375MM per property also seems like a reasonable/conservative guess on per property value.

 

True

 

Now the question of how many properties does SHLD still own as of now. Anyone know where to direct me for that?

[Mephistopheles]

For sure, lots of assumptions necessary. However, Seritage got $13.5 MM for 4 non big city KMart locations. I doubt unencumbered properties are crappier than those, so $3.375MM per property also seems like a reasonable/conservative guess on per property value.

 

True

 

Now the question of how many properties does SHLD still own as of now. Anyone know where to direct me for that?

 

I think its about ~350... about same amount what eddie tries to buy.

 

 

 

Can't be that many. Last 10-k showed 307 owned stores.

 

Eddie is proposing to buy 400 stores, not the real estate, but the actual operations (because they are EBITDA positive).

[bizaro86]

Him buying 400 stores seems very positive to me, even if he takes them below current assets (inventory and cash in the till). Should be a big drop in severance/restructuring if he takes on a bunch of leases and employees.

[Mephistopheles]

Him buying 400 stores seems very positive to me, even if he takes them below current assets (inventory and cash in the till). Should be a big drop in severance/restructuring if he takes on a bunch of leases and employees.

 

That's if the company doesn't liquidate. If creditors don't approve of the restructuring then they're liquidating, which I think is better anyway. They're projected to burn $200 million in the next 30 days..the longer they stay open, the more burn (and less money to go around).

[Spekulatius]

Him buying 400 stores seems very positive to me, even if he takes them below current assets (inventory and cash in the till). Should be a big drop in severance/restructuring if he takes on a bunch of leases and employees.

 

That's if the company doesn't liquidate. If creditors don't approve of the restructuring then they're liquidating, which I think is better anyway. They're projected to burn $200 million in the next 30 days..the longer they stay open, the more burn (and less money to go around).

 

Creditors may mind getting screwed by Fast Eddie a second time. I would probably vote for liquidation too, if I were a bond owner.

[DRValue]

It seems that Eddie converted his PIK notes and owns ~74.5% of common. There's about ~200M shares outstanding.

 

I convinced myself yesterday that retail bond and shareholders didn't stand a chance here, but I'll monitor the bankruptcy for a hint on the 2018 secured bonds.

 

Then I read your post and it's positive. Where did you get the info? I can't find anything on the sec.

[Mephistopheles]

For sure, lots of assumptions necessary. However, Seritage got $13.5 MM for 4 non big city KMart locations. I doubt unencumbered properties are crappier than those, so $3.375MM per property also seems like a reasonable/conservative guess on per property value.

 

True

 

Now the question of how many properties does SHLD still own as of now. Anyone know where to direct me for that?

 

I think its about ~350... about same amount what eddie tries to buy.

 

 

 

Can't be that many. Last 10-k showed 307 owned stores.

 

That's why i said "about".

 

 

Eddie is proposing to buy 400 stores, not the real estate, but the actual operations (because they are EBITDA positive).

Could you elaborate, where you got this information?

 

Right, but I had already stated it has to be <= the # in the 10-k, or 307, the question is how many less.

 

The 400 store buyout proposal is in the BK filing docket 3:

 

The Debtors believe that there is a viable path forward for a reorganization around a smaller footprint of profitable stores. "Approximately 400 of the Debtors’ stores are four-wall EBITDA positive (before any lease concessions)—the Debtors intend to sell these and other viable stores, or a substantial portion thereof, as a going concern pursuant to section 363 of the Bankruptcy Code. A successful sale of these viable stores as a going concern not only will save Sears and Kmart (as defined herein), but also the jobs of the tens of thousands of employees that depend on the continued operation of such stores. The Debtors are in discussions with ESL regarding a stalking-horse bid for the purchase of the Company’s viable store base, which would be a right-sized version of the Company that would be operated as a going concern. "

 

https://restructuring.primeclerk.com/sears/Home-DocketInfo?DockSearchValue=

[DRValue]

For sure, lots of assumptions necessary. However, Seritage got $13.5 MM for 4 non big city KMart locations. I doubt unencumbered properties are crappier than those, so $3.375MM per property also seems like a reasonable/conservative guess on per property value.

 

True

 

Now the question of how many properties does SHLD still own as of now. Anyone know where to direct me for that?

 

I think its about ~350... about same amount what eddie tries to buy.

 

 

 

Can't be that many. Last 10-k showed 307 owned stores.

 

That's why i said "about".

 

 

Eddie is proposing to buy 400 stores, not the real estate, but the actual operations (because they are EBITDA positive).

Could you elaborate, where you got this information?

 

Right, but I had already stated it has to be <= the # in the 10-k, or 307, the question is how many less.

 

The 400 store buyout proposal is in the BK filing docket 3:

 

The Debtors believe that there is a viable path forward for a reorganization around a smaller footprint of profitable stores. "Approximately 400 of the Debtors’ stores are four-wall EBITDA positive (before any lease concessions)—the Debtors intend to sell these and other viable stores, or a substantial portion thereof, as a going concern pursuant to section 363 of the Bankruptcy Code. A successful sale of these viable stores as a going concern not only will save Sears and Kmart (as defined herein), but also the jobs of the tens of thousands of employees that depend on the continued operation of such stores. The Debtors are in discussions with ESL regarding a stalking-horse bid for the purchase of the Company’s viable store base, which would be a right-sized version of the Company that would be operated as a going concern. "

 

https://restructuring.primeclerk.com/sears/Home-DocketInfo?DockSearchValue=

 

So, Eddie takes the stores in payment for his bonds and leaves nothing for everyone else?

[valueinvestor]

Surprised that no one put this one up, but this speculative thesis is quite simple. If there were more assets than liabilities, then shouldn't there be some value to be had? It's similar to the GGP situation, where there were more assets than liabilities, and the creditors were only entitled to enough assets to cover 100% of the liabilties, and the residual value left over was for the equity holders. I'm NOT an expert in bankruptcy law, and I have never invested in Sears, therefore I did not do any research on the company, besides reading Bruce Berkowitz take on it.

 

However, I did make a pretty penny, by putting pennies into GGP back in the day. Hoping there could be some parallels here, what do you all think?

 

[DTEJD1997]

I do not know this for a certainty...but I think the bankruptcy situations of these companies are totally different.

 

If I recall correctly, GGP was a "technical" bankruptcy, they had problems with a lender who would not roll over their debt?  The business was largely in decent shape, but management had to use the BK as a tool of leverage.  I've seen this a few times, and astute investors can make TRAINLOADS of cash on it.

 

In SHLD's case, their business just fell apart and the company is a mess.  The company is not cashflowing and the value of the assets is questionable (in terms of BK recovery).

 

So I don't think this will work out the same as GGP.

[bizaro86]

GGP had a liquidity problem, not a solvency problem. They had good assets that were making money. Plus, the economy was rebounding from the biggest recession in memory.

 

Sears doesn't have a profitable base business. They have some nice assets, mostly real estate, but the longer this takes the worse off they are. The inventory gets stale and the fees add up. GGP was making money during BK, so they were actually getting stronger over time. That's important, because basically all the advisors in the process have an incentive for it to take as long as possible.

 

I have a position in the '18 debt, which trades at less than $0.30. If you think there is potential here that seems like a way better option. For the equity to get anything the debt would need to be dealt with fully, which makes the debt a 3 bagger. But there are a lot of lesser scenarios where the debt works out way better than the equity.

 

I think if you're considering the equity you should have a reason why the market is pricing the debt so much lower than what you perceive it's fair value to be. Because if the equity is in the money at all there is a multi-billion market inefficiency in the debt.

[valueinvestor]

GGP had a liquidity problem, not a solvency problem. They had good assets that were making money. Plus, the economy was rebounding from the biggest recession in memory.

 

Sears doesn't have a profitable base business. They have some nice assets, mostly real estate, but the longer this takes the worse off they are. The inventory gets stale and the fees add up. GGP was making money during BK, so they were actually getting stronger over time. That's important, because basically all the advisors in the process have an incentive for it to take as long as possible.

 

I have a position in the '18 debt, which trades at less than $0.30. If you think there is potential here that seems like a way better option. For the equity to get anything the debt would need to be dealt with fully, which makes the debt a 3 bagger. But there are a lot of lesser scenarios where the debt works out way better than the equity.

 

I think if you're considering the equity you should have a reason why the market is pricing the debt so much lower than what you perceive it's fair value to be. Because if the equity is in the money at all there is a multi-billion market inefficiency in the debt.

 

That's a smart way to look at it! Thank you!

[heth247]

what is the CUSIP for the 18 debt? Is there chance that those debt be converted to equity? thanks

 

GGP had a liquidity problem, not a solvency problem. They had good assets that were making money. Plus, the economy was rebounding from the biggest recession in memory.

 

Sears doesn't have a profitable base business. They have some nice assets, mostly real estate, but the longer this takes the worse off they are. The inventory gets stale and the fees add up. GGP was making money during BK, so they were actually getting stronger over time. That's important, because basically all the advisors in the process have an incentive for it to take as long as possible.

 

I have a position in the '18 debt, which trades at less than $0.30. If you think there is potential here that seems like a way better option. For the equity to get anything the debt would need to be dealt with fully, which makes the debt a 3 bagger. But there are a lot of lesser scenarios where the debt works out way better than the equity.

 

I think if you're considering the equity you should have a reason why the market is pricing the debt so much lower than what you perceive it's fair value to be. Because if the equity is in the money at all there is a multi-billion market inefficiency in the debt.

[TwoCitiesCapital]

GGP had a liquidity problem, not a solvency problem. They had good assets that were making money. Plus, the economy was rebounding from the biggest recession in memory.

 

Sears doesn't have a profitable base business. They have some nice assets, mostly real estate, but the longer this takes the worse off they are. The inventory gets stale and the fees add up. GGP was making money during BK, so they were actually getting stronger over time. That's important, because basically all the advisors in the process have an incentive for it to take as long as possible.

 

I have a position in the '18 debt, which trades at less than $0.30. If you think there is potential here that seems like a way better option. For the equity to get anything the debt would need to be dealt with fully, which makes the debt a 3 bagger. But there are a lot of lesser scenarios where the debt works out way better than the equity.

 

I think if you're considering the equity you should have a reason why the market is pricing the debt so much lower than what you perceive it's fair value to be. Because if the equity is in the money at all there is a multi-billion market inefficiency in the debt.

 

+1

 

Warren Buffett has said previously that there were times he took on the debt that he wishes he would've taken on the equity - but that is only clear in hindsight.

 

The debtholders control the bankruptcy process AND get paid before equity. If you've done the leg-work and believe that there's value in the equity, it would be foolish to not play the debt, which is far safer, for the 333% return. Until the market starts doing that and pricing the debt correctly, you can bet that the outcome for equity isn't going to be pretty.

 

And, if the debt re-prices, there's likely still a very good opportunity to roll into the equity to get the residual as well.

[bizaro86]

what is the CUSIP for the 18 debt? Is there chance that those debt be converted to equity? thanks

 

GGP had a liquidity problem, not a solvency problem. They had good assets that were making money. Plus, the economy was rebounding from the biggest recession in memory.

 

Sears doesn't have a profitable base business. They have some nice assets, mostly real estate, but the longer this takes the worse off they are. The inventory gets stale and the fees add up. GGP was making money during BK, so they were actually getting stronger over time. That's important, because basically all the advisors in the process have an incentive for it to take as long as possible.

 

I have a position in the '18 debt, which trades at less than $0.30. If you think there is potential here that seems like a way better option. For the equity to get anything the debt would need to be dealt with fully, which makes the debt a 3 bagger. But there are a lot of lesser scenarios where the debt works out way better than the equity.

 

I think if you're considering the equity you should have a reason why the market is pricing the debt so much lower than what you perceive it's fair value to be. Because if the equity is in the money at all there is a multi-billion market inefficiency in the debt.

 

I bought the '18s at IB with IBCID93564153. They are bid $26.5 and ask $27. They could be converted to equity in a restructured SHLD as part of the chapter 11 process, but it would be equity in a new go-forward entity, not the pre-bankruptcy equity.

[BeerBBQ]

What makes you think that debt will be converted and not left behind?

[bizaro86]

What makes you think that debt will be converted and not left behind?

 

Are you asking me? I don't particularly think it will be converted. I think they'll liquidate the vast majority of the company, and maybe sell a rump business to ESL on a credit bid. I think as the process continues the 1st Lien will get paid out, and the 2nd lien will get some payout (up to the amount of security left). Then I think the 2nd and the SRAC will split the remaining funds.

 

It's also possible that the 2nd/SRAC end up with equity in a new rump sears.

 

Or are you talking about the guarantor/non-guarantor stuff? Because imo that is basically all nonsense. The holding company filed, and all of the subs equity is owned by the holding company. The subs (including non-guarantor) are assets available to satisfy its debt to the extent they aren't pledged to someone else (mortgagees, pensioners, etc).

[BeerBBQ]

On a liquidation of 2nd, what do you think the recovery will be and how do you get there?

[LightWhale]

https://www.bloomberg.com/news/articles/2018-11-30/eddie-lampert-s-next-play-inside-the-hedge-fund-war-at-sears?cmpid=BBD113018_BIZ&utm_medium=email&utm_source=newsletter&utm_term=181130&utm_campaign=bloombergdaily

[Gregmal]

He just can't let go....

 

https://seekingalpha.com/news/3414932-lampert-takes-final-stab-sears

[bizaro86]

I really don't like that bid. I also don't see why shop your way points holders should  get par when the 2nd lien is going to take a big haircut...

[Liberty]

I guess this will end this thread:

 

https://www.cnbc.com/2019/01/06/sears-rejects-eddie-lamperts-bid-to-save-company-will-liquidate-.html

 

I'm sure there's a lot to learn by re-reading (or at least skimming) this thread from the start. It's a nice case study for a complex, controversial company that in the end didn't work out. Reminds me of the Buffett line about the reputation of the manager and the reputation of the business...

[rkbabang]

I guess this will end this thread:

 

https://www.cnbc.com/2019/01/06/sears-rejects-eddie-lamperts-bid-to-save-company-will-liquidate-.html

 

I'm sure there's a lot to learn by re-reading (or at least skimming) this thread from the start. It's a nice case study for a complex, controversial company that in the end didn't work out. Reminds me of the Buffett line about the reputation of the manager and the reputation of the business...

 

 

Wait, not yet.  Don't count your dead chickens until they die.

 

 

Sears Reaches 11th-Hour Deal To Stay In Business

https://boston.cbslocal.com/2019/01/08/sears-deal-bid-lampert-bankruptcy-stores/

 

"After two long delays at a morning hearing in bankruptcy court, attorneys for Sears announced it had accepted a revised bid from a hedge fund controlled by Eddie Lampert, the chairman and former CEO of Sears. The deal would keep 425 of the stores open. Lampert’s $4.4 billion offer does not complete the sale, but rather starts an auction that is due to be completed on January 14. It is still possible that those wishing to shutdown the company will bid more for the assets than Lampert is offering."

 

[JayGatsby]

I also don't see why shop your way points holders should  get par when the 2nd lien is going to take a big haircut...

Shop Your Way cracks me up. Everyone I talk to that uses it with the uber promotion gets free money and still can't find anything they want.

 

Sears: "Everything in our store is free!"

Consumers: "Nah, thanks anyway."

[oddballstocks]

Well, after all of these years ESL's master plan finally comes to light.

 

He will have effectively shifted most of the assets from the public's pocket into his pocket at a discount to face value.

 

Won't be surprised when this is on VC or SumZero has some "residual value is left now that a decade of lawsuits are over and stock trades for a penny" pitch up in 2030.

 

Maybe Bruce and Eddie can get together and finally take that picture of the last two shares, one share in each hand with them smiling. They should do the photo-op on St Joe land..