BANKRUPTCY AISLE
Lampert-drained Sears in Chapter 11 mode
The day has finally come: Sears is going bankrupt.
The once-dominant retail icon — whose Sears and Kmart chains have shrunk drastically and grown dilapidated after more than a dozen years under the control of billionaire Eddie Lampert — was expected to file for Chapter 11 bankruptcy protection by late Sunday or early Monday.
After nearly a week of intense negotiations, Sears’ lenders were close to agreeing to supply a $500 million loan to keep shelves stocked and employees paid through the holidays, according to sources close to the situation.
It’s unclear, however, whether the iconic retail chain will survive beyond that, after getting whittled down to about 700 locations. That’s versus more than 3,500 before Lampert, a hedge-fund manager, merged the retailers in 2005 to form Sears Holdings and made himself chairman and chief executive.
“Sears has been under a hail of fire for some time with a lot of questions about its CEO and his real intentions,” said Eric Schiffer, chief executive of Patriarch, a LA-based private equity firm.
“I think it’s unlikely that it’ll survive beyond the filing. They haven’t figured out how to merchandise.”
Under the expected reorganization plan, about 150 stores are expected to close immediately while Lampert weighs a bid to keep 300 locations running beyond Christmas, sources said. The fate of 250 additional stores will hang in the balance while the rest are shuttered by early next year.
“Some of the stores have to be decent,” said Kenneth Rosen, a bankruptcy lawyer with Lowenstein Sandler. “I’d be surprised if they were all losers, and I’d bet that Eddie Lampert knows which ones they are.”
Nevertheless, insiders say some lenders remain skeptical whether any game plan to keep Sears and Kmart alive, even in downsized form, would be more profitable than simply liquidating both chains and getting out for good.
The expected filing comes as Sears Holdings faced a $134 million debt payment that was coming due on Monday — a payment that Lampert refused to make, insiders said.
That’s despite the fact that Lampert has repeatedly hived off the company’s assets to keep the lights on. Last year, he sold the company’s Craftsman tools brand to rival Black & Decker for $900 million.
In 2015, Sears raised $2.7 billion by selling 200 stores to a Lampert-controlled company called Seritage, which has since leased some locations back to Sears while leasing out the balance to other retailers, restaurants, bowling alleys and residential developers.
With about a quarter of Sears’ remaining operational assets available to creditors, among the most valuable is the Kenmore appliance brand, which Lampert offered to buy earlier this year for $400 million.
Lampert also had offered to buy Sears’ home services division for an additional $80 million, as well some 200 stores valued at $1.5 billion for which Sears owns the real estate, according to a source with knowledge of Sears’ assets.
But the Sears board earlier this month rejected Lampert’s offer, fearing creditors would sue over what could be seen as a sweetheart deal .
In addition to controlling half of Sears’ stock, Lampert and his hedge fund, ESL Investments, owns about 40 percent of company debt.