SHLDQ - Sears Holdings Corp

[ERICOPOLY]

How much will Eddie increase his investment in the stores going forward?

 

Today he said that he underinvested because the pension was sucking the money away from him.  So if interest rates go up and stay up as some hope, thereby fixing the pension liability, then won't he invest in the stores?

 

Something doesn't make sense.  Back in February he said this:

 

In our case, observers have mistakenly concluded that our issues were primarily related to underinvesting in our stores.

 

http://www.searsholdings.com/invest/#letter

[Luke 532]

Here’s another way to look at the value of the real estate.  It's a quick-and-dirty valuation.  Take it for what it’s worth…

 

Market cap: 4.256B (at $40/share)

Liabilities: 16.454B

$16.454 liab + $4.256 market cap = $20.71B – $3.75B inventory – $4B brands = $12.96B / 241M sq ft = $53.77/sq ft.  What’s the most comparable city in America where retail real estate is selling for $50-$55/sq ft?  Detroit ($100+ average in America… $250 in very high-end areas like Northern Virginia and Northern California).

 

At $40/share, the stock market is assuming a 50% haircut on liquidating all inventory*, selling the brands for just $4B, and all of SHLD’s real estate is located in Detroit.  Clearly it’s not all in Detroit or in locations like Detroit… a dozen properties in Northern California, bunch of stores where I live in Northern Virginia, and they received $287M in proceeds on $46M book value year-to-date (a 6-bagger on book), sold the 11 properties to GGP in 2012 for $270M (270M / 1.8M sq feet = $150/sq ft), etc.

 

The market is offering you SHLD’s real estate portfolio at Detroit real estate prices.

*inventory when closing a store, “always able to sell it at more than they pay for it” (Lou D’Ambrosio).

 

How could you account for closing cost such as severance package?

 

Since we are doing quick and dirty valuations... :-)

 

Sears had 295K employees at the end of 2011 and 274K at the end of 2012. They had severance and store-closing costs of 140 million in 2012. Assuming that 21K employees were laid off and assuming that severance is the bulk of the store-closing costs, 140 million implies a cost of about 6,700 per employee. Multiplying by 274K employees gives us a cost of about 1.8 billion for closing all the remaining stores. So maybe you can add 2 billion or so to Sears' liabilities to account for closing stores.

 

I think a bigger issue with Luke's real estate valuation is that two-thirds of the stores are leased and not owned. A lot of the leases seem to be operating leases and therefore not represented as a liability on the balance sheet (based on my rudimentary understanding of lease accounting). Are the leased stores also worth much more that $50 per square foot? Maybe, but that depends on the terms of the lease.

 

You'll notice I valued the inventory conservatively at just 3.75B where in reality it's 7.5B.  In an orderly wind-down they'd likely be able to get 75% of book value (they're getting more than 100% of book according to D'Ambrosio), so that would cover the $1.8B-$2.0B in closing costs, severance, etc.

 

If we do 90M sq ft sold at Detroit rates ($55), and 150M sq ft at leased Detroit rates ($12), we get $6.75B for real estate value.  Obviously, that's unrealistic as they have properties in much better places than Detroit.  $100 for sale and $15 for rent are roughly the national averages.  If we use the national averages that's ($100 * 90M) + ($15 * 150M) = $11.25B.

 

 

[Luke 532]

 

Today he said that he underinvested because the pension was sucking the money away from him.  So if interest rates go up and stay up as some hope, thereby fixing the pension liability, then won't he invest in the stores?

 

Be careful putting words in Lampert's mouth.  One practice I've used over the years is to only read the actual quotes from the subject, and not the musings of the author of the article.  And then afterwards go back and read the entire article. 

 

Does he really say he would have invested in the stores if it wasn't for the pension?  I don't get that message from the quotes.

[ERICOPOLY]

How much will Eddie increase his investment in the stores going forward?

 

Today he said that he underinvested because the pension was sucking the money away from him.  So if interest rates go up and stay up as some hope, thereby fixing the pension liability, then won't he invest in the stores?

 

Something doesn't make sense.  Back in February he said this:

 

In our case, observers have mistakenly concluded that our issues were primarily related to underinvesting in our stores.

 

http://www.searsholdings.com/invest/#letter

 

The article posted today and the quote you just referenced when thought of together just seems to me like he's willing to invest in the good stores once they are FCF positive.

 

You are Eddie:

 

You have $6 billion in your hands and you choose to return it to shareholders instead of investing in the stores.  In theory, you return only EXCESS cash to shareholders.

 

Later he has no money in his hands and says if only he had money he would invest it in his stores.

 

Never did he invest in the stores -- not when he had TONS AND TONS of it coming out of his fricken ears, and not when it was scarce.

 

To this you say that he will invest when he has FCF?  How about when he has $6b, isn't that enough?

 

[Luke 532]

That's why I just deleted that message you quoted (you must have captured the quote prior to me deleting it) :-)  Read the response just above your message.

[Luke 532]

Never did he invest in the stores -- not when he had TONS AND TONS of it coming out of his fricken ears, and not when it was scarce.

 

What's that tell you about his plans for brick-and-mortar since day one? 

[ERICOPOLY]

That's why I just deleted that message you quoted (you must have captured the quote prior to me deleting it) :-)  Read the response just above your message.

 

I am usually pretty harsh on myself.  I make a mistake and call myself out on it -- today for example I said no adults are in control of the decisions.

 

Eddie just makes excuses instead of saying "I was wrong" -- that's why I'm picking on him.

[Luke 532]

Never did he invest in the stores -- not when he had TONS AND TONS of it coming out of his fricken ears, and not when it was scarce.

 

What's that tell you about his plans for brick-and-mortar since day one?

http://www.investmentnews.com/article/20120918/BLOG06/120919939

Berkowitz acknowledges that some people complain that Sears stores are rundown, but he explains, “Sears does just enough, so they're not breaking the terms of their very long lease.”

[ERICOPOLY]

 

Today he said that he underinvested because the pension was sucking the money away from him.  So if interest rates go up and stay up as some hope, thereby fixing the pension liability, then won't he invest in the stores?

 

Be careful putting words in Lampert's mouth.  One practice I've used over the years is to only read the actual quotes from the subject, and not the musings of the author of the article.  And then afterwards go back and read the entire article. 

 

Does he really say he would have invested in the stores if it wasn't for the pension?  I don't get that message from the quotes.

 

Fair enough.  Look if he is just getting framed up by the media (which is clearly not beyond the ethics of the media) then I sincerely apologize to Eddie (on the remote chance he reads this).  I hate the effing media -- they do that kind of thing all the time.

[ERICOPOLY]

Never did he invest in the stores -- not when he had TONS AND TONS of it coming out of his fricken ears, and not when it was scarce.

 

What's that tell you about his plans for brick-and-mortar since day one?

http://www.investmentnews.com/article/20120918/BLOG06/120919939

Berkowitz acknowledges that some people complain that Sears stores are rundown, but he explains, “Sears does just enough, so they're not breaking the terms of their very long lease.”

 

A lot of Sears stores are not leased.  But even if they are, why keep them open?  Is the strategy to act slowly on the plan to shut them down? 

 

I know one possible answer is that they milked free cash flow for a while, but if you count the free cash flow was it actually a good return on the purported $160 per share in real estate?

 

[wisdom]

I had been hoping to add in the $30s and all the activity on the board had me worried as it was getting SHLD too much attention. I added a bit today. Hoping that Mr mkt gives me a shot to add a lot more in mid to lower 30s. Hoping for more negative news and posts so that the price is driven further down.

 

SHLD has been expected to go BK by all retail experts every yr since 2007. Yet we are here in 2013 still talking about how they are about to go bankrupt. They came through 2008 without needing any help. The current situation is nowhere as dire and SHLD will survive.

 

As I have said before - margin of safety allows Eddie to make a lot of mistakes and still survive. The mkt is being overly harsh on Eddie. If you look at most retailers and include HD, etc, they haven't done much better than SHLD over the last 5 yrs.

 

Question is: what does retail look like in 5 yrs? Which company is underinvesting in stores like crazy and making a huge bet on online retail? Who does not have their head in the sand and is looking to where the puck will be in 5 yrs time? The difference between Eddie and most investors is that he is long term. All you need to do is look at his past behaviour and investments like autozone.

 

 

 

[txlaw]

 

Haha, you took the words right out of my mouth.  I was gonna ask whether ESL also blames himself for the cash that he distributed to exiting shareholders at nosebleed prices -- or just the socialist pension plan that his predecessors put in place?  ;D

 

 

 

I believe at the annual meeting a couple of years ago Eddie did admit that the share repurchases were not the optimal use of capital. He said they were too early and regretted the fact that they didn't have more cash to buy more stock when the stock was lower. He said that had they waited they may have had 90 million shares instead of 110 million.

 

He also added that in hindsight he felt that the only superior use of capital would have been holding cash but that often when you hold a lot of cash, people don't like that either.

 

One of the main problems I have with the buybacks -- aside from the fact that I have never understood the buyback price (unlike Ericopoly, I don't view share buybacks as mere returns of capital, so I thought ESL was likely harming remaining shareholders who were being forced to increase their ownership stakes at overly high prices) -- is that he was quite willing to undertake them without letting his exiting shareholders know what the plan was for SHLD. 

 

I've always found that to be a bit dodgy.

 

But at least now ESL has pretty much spelled it out for shareholders.  The problem is in the execution. 

[merkhet]

So here's my going theory on Sears.

 

https://docs.google.com/spreadsheet/pub?key=0ArX667iB-WCRdFZRMEl4T29EQnRmUTZueE1XY09nSWc&single=true&gid=0&output=html

 

I used the Bloomberg screenshot from earlier in the thread to put those numbers together.  I don't think I need to explain to anyone on here that RBS/ESL, Fairholme & Tisch are in it for the long haul. If you search around, you'll also find Horizon Kinetics, Old West Investments & Chou Associates have all similarly stated they are or acted as long haul investors -- so I would think they can safely be called non-float shares.

 

Baker Street & Force Capital Management, I think, are more opportunistic in that they're holding it sort of for the long haul, but at the very least, I think that they're not the types to trade in and out of the position.

 

If you add all that up, the short interest of 14 million shares is 85% of the float of 16.5 million shares.

 

Now, the interesting thing is that both Baker Street & Force Capital have a lot of interest via call options. We've discussed previously that it looks like they've bought 2015 calls @ $60 and sold 2015 calls @ $70.  Baker Street has 7 million shares via calls and Force Capital has 4.7 million shares via calls. And oddly enough, Baker Street owned the 700,00 calls first.

 

So, I have to make one leap of faith here. I don't think that anyone on that list is selling calls to get called out of their shares @ $70 a pop. Therefore, I think that the extra 11.7 million shares via calls is coming from the 16.5 million shares of float.

 

What happens if either or both of those funds ends up exercising their options? You'd suck 4.7 million, 7 million or 11.7 million of shares out of a float of 16.5 million shares. Keep in mind that the average volume is 870,000 shares a day and there are 14 million shares sold short.  If the "true" float is only about 4.8 million shares, and you're short the name, then you're in some serious trouble...

 

Just some thoughts.

 

Are you suggestion those 11.7 million calls are naked calls? Hard to imagine people would sell naked call on Sears. Very dangerous move IMO.

The obvious question would be what the trigger would be?

 

I am not suggesting that those 11.7 million shares via calls are naked calls at all. I am saying that they come from owners in the 16.5 million float who wrote covered calls. Either way, it reduces he float. If it's naked calls, that's all the better for a squeeze.

[ERICOPOLY]

Now, the interesting thing is that both Baker Street & Force Capital have a lot of interest via call options. We've discussed previously that it looks like they've bought 2015 calls @ $60 and sold 2015 calls @ $70.  Baker Street has 7 million shares via calls and Force Capital has 4.7 million shares via calls. And oddly enough, Baker Street owned the 700,00 calls first.

 

So, I have to make one leap of faith here. I don't think that anyone on that list is selling calls to get called out of their shares @ $70 a pop. Therefore, I think that the extra 11.7 million shares via calls is coming from the 16.5 million shares of float.

 

 

I'm confused.  If they bought $60 and wrote $70, then they have no net position.  They just have a bull spread.  They are trying to get a maximum $10 on the net premium invested (the net between what they paid for a $60 and what they got paid for writing a $70).

 

So if the stock is at $80, this creates no pressure on the shares -- one share sold at $70 for every share purchased at $60.

 

The only way I can think it creates pressure is if the shares are between $60 and $70 at expiry.  But if either below $60 or above $70, then it's completely without impact.

[ERICOPOLY]

Which company is underinvesting in stores like crazy and making a huge bet on online retail? Who does not have their head in the sand and is looking to where the puck will be in 5 yrs time? The difference between Eddie and most investors is that he is long term. All you need to do is look at his past behaviour and investments like autozone.

 

I read his annual reports and saw the bit about the huge investment in online retail.

 

However I'm used to shopping at Amazon.  I encourage you to search Amazon for "LED bulbs".  Then search ShopYourWay.com for "LED bulbs" -- you'll have to filter it "for the home".

 

It's jaw dropping.  They suck so bad at online retail it's impossible for me to describe in words -- you just have to witness it for yourself.  And that's after making a "huge bet" on online retail?  What a mess.

[txlaw]

Never did he invest in the stores -- not when he had TONS AND TONS of it coming out of his fricken ears, and not when it was scarce.

 

What's that tell you about his plans for brick-and-mortar since day one?

http://www.investmentnews.com/article/20120918/BLOG06/120919939

Berkowitz acknowledges that some people complain that Sears stores are rundown, but he explains, “Sears does just enough, so they're not breaking the terms of their very long lease.”

 

A lot of Sears stores are not leased.  But even if they are, why keep them open?  Is the strategy to act slowly on the plan to shut them down? 

 

I know one possible answer is that they milked free cash flow for a while, but if you count the free cash flow was it actually a good return on the purported $160 per share in real estate?

 

I think the answer to your second question is, yes, the strategy was to act slowly to shut them down, although now ESL is somewhat accelerating the store shut downs.

 

There are two reasons for this, I believe.

 

First, I think ESL probably thought that, when the financial crisis and Great Recession hit, he would be better off waiting it out in order to get a better price for both his owned and leased space.  It's easy to say that Sears RE is worth $160, but a couple of years ago, there is no way in hell that any such value could be realized. 

 

Second, I believe ESL opted for slow liquidation in order to maintain one of Sears the Retailer's most valuable intangible assets -- a very high market share in appliance sales (even now, it's 29%).  Had he just shut down a bunch of Sears full-line stores at once, he basically would have squandered that market share position.  Instead, he has slowly shifted Sears appliance and hardware sales from the crappy full-line stores to the small format stores, which are focused on appliance and hardware, and many of which are franchised.  SHOS is essentially the vehicle into which he is trying to shift the "good Sears" retail biz. 

 

That's why we should wait and see what SHOS sales are like.  If it turns out that they also had issues with appliance sales, then it could be that Sears the Retailer is truly f#!*ed.  On the other hand, if they're doing just fine, then the associated biz in SHLD (brand royalties, sourcing ops, web ops for appliance/hardware) has value.

 

Now, Kmart is another story.  That I do not understand.  I think ESL believes that by keeping Kmart open, he can extract some value from the customer base through SYW.  I'm skeptical about that because he's going against much better retailers who also have presences online (AMZN, WMT, TGT, COST, to name a few).

[wisdom]

Amazon has a far superior search engine and overall it is awesome.

 

But, there will be more than 1 retailer in the long run. There are way more than 2 outcomes in this scenario.

 

By the time everything is clear, one is bound to have missed the best investment opportunity.

 

Pros that I see:

1) cheap - allows for errors and negates the timeline factor to an extent

2) good capital allocator at the helm - has extensive history of making money

3) largest owner is CEO and does not receive a salary - interests are aligned and is ready to work hard as he wants to create a legacy

4) people who are good at this game control most of the shares

5) CEO sees that industry is changing and at least is making an attempt to not throw more money on stores that are dying. In my judgement this is very important. Most other retailers are still spending a lot of money on a low margin business that is in decline. This is similar to FFH and BRK reducing the amount of business they take on during soft markets.

6) Unlike Ron Johnson, etc. Eddie does not have the solutions. He has been trying different ideas and collecting data. His decision to proceed with a plan is based on the data collected. This is a far better method of decision making in my judgement.

7) Eddie is planning to go asset lite and reduce inventory by using 3rd parties. This should free up capital and reduce capex in the long run.

 

cons

1) retail industry going through change (integrated retail)

2) sales have been dropping (If SYW works, we could have this stabilize soon along with the housing coming back)

3) timeline is unknown - most investors do not have patience (this uncertainty may be one of the biggest factors for the mispricing as everyone has given up)

4) pensions ( depends on discount rate)

5) losses (plans in place that may succeed in changing this)

6) most of the market does not see the value in the assets and believes SHLD will be BK soon

 

I don't see why Eddie has to be all knowing and cannot make any mistakes. One should not look at SHLD in isolation. Look at the whole industry and you can see the struggles.

 

Others are welcome to add on to this list as they see fit.

[merkhet]

Now, the interesting thing is that both Baker Street & Force Capital have a lot of interest via call options. We've discussed previously that it looks like they've bought 2015 calls @ $60 and sold 2015 calls @ $70.  Baker Street has 7 million shares via calls and Force Capital has 4.7 million shares via calls. And oddly enough, Baker Street owned the 700,00 calls first.

 

So, I have to make one leap of faith here. I don't think that anyone on that list is selling calls to get called out of their shares @ $70 a pop. Therefore, I think that the extra 11.7 million shares via calls is coming from the 16.5 million shares of float.

 

 

I'm confused.  If they bought $60 and wrote $70, then they have no net position.  They just have a bull spread.  They are trying to get a maximum $10 on the net premium invested (the net between what they paid for a $60 and what they got paid for writing a $70).

 

So if the stock is at $80, this creates no pressure on the shares -- one share sold at $70 for every share purchased at $60.

 

The only way I can think it creates pressure is if the shares are between $60 and $70 at expiry.  But if either below $60 or above $70, then it's completely without impact.

 

I'm in Montreal for a bachelor party, which includes quite a bit of boozing, so that's my disclaimer in case this doesn't make as much sense as it did about 12 hours ago.

 

Thoughts:

 

(1) Even not counting the bull spread, 85% is a very significant short interest as a percentage of float. If you'll remember the two days prior to the earnings release, Sears went from $40 to $44 over two days of slightly higher than normal trading of 1 million to 1.4 million shares. My interpretation of that is tightened liquidity in the stock -- maybe that's what's happening... maybe not.

 

(2) Let's say I own calls for 7 million shares at $60 a share and I've sold calls for 7 million shares at $70 a share. Let's further say that the float is 16.5 million, the short interest is 14 million, and the stock is at $40 a share. Let's say I execute the 700,000 calls -- do I get an immediate $20 per share loss? Theoretically, all else equal, that would be the case, right? Except all else is not equal. All of a sudden, a stock that trades 870,000 shares a day on average would go from having a float of 16.5 million shares to a float of 9.5 million shares with 14 million shares sold short. Would the price of the stock be at $40? I don't think so. Would there be a pretty good chance that the price of the stock is higher than $40? My guess is very much so. In fact, a tightening of the supply of shares like that would likely send the price of the stock north of $60 very fast.

 

(3) I don't know who is on the other end of the $70 calls. Let's just assume it's short sellers covering their ass. Does it matter to us if the short sellers cover at $70 if we buy at $40? Maybe not so much. If it's not the short sellers, then all the better.

 

Note that I'm not sure this is the strategy re the calls at all -- it's just an interesting thought experiment. The fact that the float is 85% short is more than enough to make this interesting for me.

[Guest hellsten]

Which company is underinvesting in stores like crazy and making a huge bet on online retail? Who does not have their head in the sand and is looking to where the puck will be in 5 yrs time? The difference between Eddie and most investors is that he is long term. All you need to do is look at his past behaviour and investments like autozone.

 

I read his annual reports and saw the bit about the huge investment in online retail.

 

However I'm used to shopping at Amazon.  I encourage you to search Amazon for "LED bulbs".  Then search ShopYourWay.com for "LED bulbs" -- you'll have to filter it "for the home".

 

It's jaw dropping.  They suck so bad at online retail it's impossible for me to describe in words -- you just have to witness it for yourself.  And that's after making a "huge bet" on online retail?  What a mess.

 

Suck they do:

 

http://www.sears.com/search=led%20bulb

#1 result:

http://www.sears.com/nebo-2-pack-nebo-redline-tactical-flashlight-strobe/p-SPM7979043613?prdNo=1

 

http://www.shopyourway.com/search/products?allowRedirection=true&q=led+bulb

#1 result:

http://www.shopyourway.com/hqrp-ba15s-bayonet-base-18-leds-smd-led-bulb-warm-white-replacement-for-1141-rv-motorhome-led-bulb-i/233712748

 

http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=led+bulb

#1 result:

http://www.amazon.com/Lighting-EVER-Performance-Incandescent-Replacement/dp/B008OBEECC/ref=sr_1_1?ie=UTF8&qid=1377244480&sr=8-1&keywords=led+bulb

 

Amazon definitely has the best search algorithm and classification of products.

 

I'm speculating here, but it looks like the classification of items at Sears and SYW is far from optimal, and their search engine is simply searching the title and description. This will give you the random results you see at Sears.

 

What they need to do is classify products better and tune the search algorithm slightly:

 

The category for the #1 result at Sears:

Tools > Lighting > Flashlights & Lanterns

 

Category for the #1 result at Amazon:

Home Improvement > Electrical > Light Bulbs > LED Bulbs

 

This should be a fairly easy fix. The biggest problem is the amount of items being sold at Sears; if Amazon solved this and they have let's say 100 million items and Sears have let's say 1 million items, then I don't understand why it isn't being fixed other than incompetence.

 

This is what worries me; why hasn't anyone noticed this at Sears and fixed it? I'm speculating that this is because they don't have a management and engineering team that knows what they're doing. Even if they tried to attract top talent, they would have difficulties attracting the best because they work for Amazon and other sexier companies.

 

In my opinion they need to hire an outside company to build and fix their online products.

 

On a positive side, search is really easy to fix. Overstock had similar problems a year or two ago, but now they seem to have a good team in place which is working on improving algorithms. AFAIK, this is one of the many reasons Overstock is again growing:

http://www.overstock.com/search?keywords=led+bulb&SearchType=Header

 

To summarize, my opinion is that Sears and Eddie Lampert doesn't understand online (as well as their competitors)… SYW and Sears.com are proof of that.

 

This is again proof that Eddie's spreadsheets have not helped him engineer a turn around, so far…

[Kraven]

I saw the first article by Bishop Research. Did you know this guy personally? How did you know he is writing more articles on SHLD?

I would hope it uncovers the corp structures and how assets are separated from the liabilities. Right now there is simply not enough info to figure out what is going on.

 

I don't know that guy personally. But read the comment section of that SA article, he just posted today saying that he is going to publish one on the guarantor/non-guarantor and a couple of more on this topic.

 

He claims that he has been studying SHLD and ESL for a very long time. Based on the depth/length of his analysis, I really think so. He even published an article about DFS not long ago, which was the spin off of SHLD's credit card business.

 

I read through this article quickly (it's long - http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy) and the guy really seems to know his stuff.  For anyone interested it has a good discussion of possible real estate values.  What I would caution though is that his understanding of securitization structures and what it means to be bankruptcy remote is flawed.  It would seem as if people think that Eddie being a genius restructuring expert and all that the REMIC and KCD being bankruptcy remote means that if Sears Holdings (or, perhaps more appropriately, the retail subs) went under that these assets are safe.  That is not what it means.  I like the assets here as much as anyone else, but if Holdings goes under I don't see how those assets are safe.

[Kraven]

Free cash flow may be much closer than people think.

 

I sort of think Eddie is going to invest more in the stores now after commenting that: "It was the pensions, yeah, the pensions that kept me from doing it.  That's the ticket!"

 

Good Jon Lovitz memories there.  That was funny stuff.

[CorpRaider]

Looking for more color on what happened with appliances.  You're the number one appliance retailer.  Housing is back and every single one of your competitors cited that as an area of strength in the last quarter.  That is a problem for me.

[PLynchJr]

Sears Crucial Appliance Sales Erode

 

http://online.wsj.com/article/SB10001424127887323665504579028371672070930.html?mod=WSJ_hp_LEFTWhatsNewsCollection

[alertmeipp]

I saw the first article by Bishop Research. Did you know this guy personally? How did you know he is writing more articles on SHLD?

I would hope it uncovers the corp structures and how assets are separated from the liabilities. Right now there is simply not enough info to figure out what is going on.

 

I don't know that guy personally. But read the comment section of that SA article, he just posted today saying that he is going to publish one on the guarantor/non-guarantor and a couple of more on this topic.

 

He claims that he has been studying SHLD and ESL for a very long time. Based on the depth/length of his analysis, I really think so. He even published an article about DFS not long ago, which was the spin off of SHLD's credit card business.

 

I read through this article quickly (it's long - http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy) and the guy really seems to know his stuff.  For anyone interested it has a good discussion of possible real estate values.  What I would caution though is that his understanding of securitization structures and what it means to be bankruptcy remote is flawed.  It would seem as if people think that Eddie being a genius restructuring expert and all that the REMIC and KCD being bankruptcy remote means that if Sears Holdings (or, perhaps more appropriately, the retail subs) went under that these assets are safe.  That is not what it means.  I like the assets here as much as anyone else, but if Holdings goes under I don't see how those assets are safe.

 

Creditors will still have priority claim over equities on bankruptcy remote entities, correct?

[Kraven]

I saw the first article by Bishop Research. Did you know this guy personally? How did you know he is writing more articles on SHLD?

I would hope it uncovers the corp structures and how assets are separated from the liabilities. Right now there is simply not enough info to figure out what is going on.

 

I don't know that guy personally. But read the comment section of that SA article, he just posted today saying that he is going to publish one on the guarantor/non-guarantor and a couple of more on this topic.

 

He claims that he has been studying SHLD and ESL for a very long time. Based on the depth/length of his analysis, I really think so. He even published an article about DFS not long ago, which was the spin off of SHLD's credit card business.

 

I read through this article quickly (it's long - http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy) and the guy really seems to know his stuff.  For anyone interested it has a good discussion of possible real estate values.  What I would caution though is that his understanding of securitization structures and what it means to be bankruptcy remote is flawed.  It would seem as if people think that Eddie being a genius restructuring expert and all that the REMIC and KCD being bankruptcy remote means that if Sears Holdings (or, perhaps more appropriately, the retail subs) went under that these assets are safe.  That is not what it means.  I like the assets here as much as anyone else, but if Holdings goes under I don't see how those assets are safe.

 

Creditors will still have priority claim over equities on bankruptcy remote entities, correct?

 

A creditor to the retail subs that own the special purpose vehicles would have access to those ownership interests in the event either of those subs went under.  As to whether they could pull the assets out, that's a more complex analysis.  The assets have been pledged to secure the securitizations so while these creditors might be able to foreclose on the equity interests in the special purpose vehicles they would probably be subordinated to the holders of the securities (from the securitization). 

 

It gets very complicated and is beyond the scope of anything I could even begin to analyze here based on a few paragraphs of information.  The assets held by the SPEs that were pledged may in fact still be owned by the retail subs (since there probably was no true sale to get them there) so they may very well be available to creditors of the retail subs.  As to priorities and who has what place in line, I have no idea.  The thing to keep in mind is that all of this is in the family.  A collapse of one would likely lead the dominoes to topple over.

 

At the end of the day, given what seems to be extreme asset coverage here with tremendous assets all around, even if there was a bankruptcy it might still mean that Holdings shareholders do extremely well.  Given some of the possible share valuations being thrown around that is probably the margin of safety seen by Lampert and Berkowitz.  Note that the balance sheet of Holdings is consolidated.  It includes all assets and liabilities of these various subs.