by Wolf Richter, Wolf Street:
Sears doom-and-gloomers approach the end of their long wait.
Sears Holding Corp., which owns the Sears and Kmart stores and is run by hedge-fund manager Eddie Lampert, who is also its largest shareholder, pulled off another little trick when it announced today that it had lined up $200 million “to fund its operations,” but not cash, which is what Sears needs more than anything, given the rate at which it is burning it, but a Secured Standby Letter of Credit, which may be expanded to $500 million, “with the consent of the lenders.”
This announcement gives some clues that after many years of disappointment, Sears doom-and-gloomers might finally approach the end of their long wait:
Sears is scrounging up this financing right after the holiday selling season when retailers should be swimming in cash and profits. It’s their best time of year. But even that wasn’t enough for Sears.
The letter of credit is not from a bank, but from JPP, LLC and JPP II, LLC, which are affiliates of ESL Investments, which is Lambert’s hedge fund. Citibank serves only as “administrative agent and issuing bank.” In other words, no one outside of Lambert is still willing to lend to Sears.
The letter of credit is designed to soothe the nerves of Sears’ suppliers, which, fretting about not getting paid, might cut Sears off.
That suppliers are getting antsy has been an ongoing problem. But on December 16, according to Debtwire, “three sources familiar with the matter” said that suppliers were “requesting cash in advance before they agree to ship or are opting instead to avoid shipments altogether.” This “would mark a new chapter in the company’s ongoing descent, according to the sources.”
On December 8, Sears had reported another mega-loss, $748 million for the quarter – or $6.99 a share, the worst in over four years of bad losses – adding to its pile to cumulative losses, which after eight years of additions, has now reached $9.4 billion. Revenues plunged 12.5% year over year.
At the time, Sears said it had $258 million in cash as of October 29 and $174 million available to borrow via its revolving credit line. Not much, given the cash-burn rate.
Nevertheless, and with bitter irony, Sears assured its shareholders in the press release at the time that it was “fully committed to restoring profitability,” upon which its shares jumped 4.5% to $12.66, only to plunge 34% in the weeks since, sucker-punching, as Sears invariably does, those hardly souls that keep buying these shares on a wing and a prayer.
To keep afloat over these money-losing cash-burning years, Sears has sold some of its brands, including Lands’ End and Hometown & Outlet Stores. It has also sold off big parts of its real estate holdings, including the Sears building in Oakland, which Uber bought for its new headquarters.
In the third quarter alone, Sears Holding also terminated the leases of 17 store properties owned by Seritage Growth Properties, a publicly traded REIT, which Sears Holding had formed on July 8, 2015 (more on that in a moment). The rights offering included in the deal helped fund Seritage’s $2.7 billion sale-leaseback acquisition from Sears Holding of 235 Sears and Kmart stores along with 31 properties where Sears was part-owner.
It’s trying to offload other brands, including Kenmore, Craftsman, and DieHard, along with its Sears Home Services business. Those efforts have not been fruitful so far, and the statement said that “there can be no assurance” these transactions will ever happen.
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