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Egan-Jones Downgrades Sears To Lowest Rating Above Default

Tyler Durden's picture




 

Following today's increasingly more adverse news for Sears, which saw primary vendor funder CIT cut ties with the Eddie Lampert mega investment, it was only a matter of time before the market realized that the jig for the once bankrupt retailer may be up, and a Chapter 22 is the only possible option. Sure enough, the first to respond to this is the rating agency that not only is capable of forward looking activity, unlike all the other NRSROs, and also managed to get Jefferies to admit it had a far greater European exposure than the market was comfortable with (resulting in a major cut in gross and net, and a far greater transparency into its balance sheet). As of minutes ago, Egan Jones just downgraded Sears Holdings to the lowest rating just above default: C, from CC.

From Egan-Jones:

More problems - CIT's cutting factor financing for SHLD hurts. Like the book retailers (Barnes&Noble and Borders) electronic retailers (Circuit City and Blockbuster), SHLD is facing an existential challenge. SHLD is closing 120 Sears and K-Mart stores and the ability to dispose of the real-estate is questionable. Over the past five years annual operating income declined from $2.48B to $407M. TTM Oct. operating income declined from a $520M gain last year to a $158M loss this year while interest rose from $284M to $329M. Revenues for the Oct. 11 quarter were down 1.2% YoY. KMART same store sales were down .9% while Sears Domestic same store sales declined .7%. Internet sales rose 19% while Sears Canada same store sales.

The time may be right to bring back that one Zero Hedge feature from early 2009- the Death Clock, which is nowhere more applicable now than with SHLD. Our advice: ignore the stock price which is now purely a function of momo chasers in either direction, and just focus on the CDS.

Here is SHLD CDS:

...and SRAC - even worse.

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Thu, 01/12/2012 - 13:43 | 2058838 apu123
apu123's picture

Like all the other bad news today, this is bullish!  Risk on!

Thu, 01/12/2012 - 13:50 | 2058864 BandGap
BandGap's picture

I smell a liquidation sale! And I need some new tools!

Thu, 01/12/2012 - 13:52 | 2058876 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Today's liquidation sale was the dollar.

Thu, 01/12/2012 - 13:57 | 2058894 francis_sawyer
francis_sawyer's picture

aka - "SHears Holdings"

Thu, 01/12/2012 - 14:06 | 2058934 Don Birnam
Don Birnam's picture

Casualty Report/collateral damage:

Lampert chum Bruce Berkowitz -- of Fairholme Capital Management.

Fairholme Capital holds 16,270,000 shares -- or, 15.2% of the Company.

The problem with swinging for the fences ( Bruce ) is that there is always an outfielder waiting to make a routine play on a pop-fly. The handwriting has been on the wall for this one going back at least a dozen quarters.

Thu, 01/12/2012 - 14:37 | 2059060 TruthInSunshine
TruthInSunshine's picture

Eddie Lampert tried to make buku $$$ by hatching a plan to buy an anemic, pathetic retailer (with a comatose retailer, Kmart, in tow), and turn it into a REIT, on the premise that there was time and air left in the commercial real estate bubble (created by Greesnpan & Bernanke).

Eddie Lampert and those who tied their hitch to his carriage got prison raped, and the fun's just begun.

Retailer carcasses are going to hit the floor en masse.

Everyday will be doorbuster special as the herd is culled.

Thu, 01/12/2012 - 16:54 | 2059736 Things that go bump
Things that go bump's picture

After what Best Buy pulled on their online customers, I was expecting them to file for bankruptcy protection right after the first of the year, but I have heard nothing.  Maybe I missed the announcement? 

Thu, 01/12/2012 - 17:31 | 2059862 Freddie
Freddie's picture

LOL!  Checkout Fairholme's portfolio:

http://www.google.com/finance?q=MUTF:FAIRX#

Sears 7.92%

Bank of America 6.11%

Berkshire A & B(ag man) 7.9%

Fairholme Alpha -40.51   Beta 1.39  - those a "good" numbers.  LOL!

He is bottom fishing in the sh*t pond.  Warner Buffert O-ba-m-ah cannot beat the S&P 500.   Berkowitz was fund manager of the decade by MStar/Money/Smart Money.  What a joke. 

Eddie Lampert and Berkowitz should be stuff in a Kenmore garbage disposal or Craftsman wood chipper.  F***ng crooks.  

Thu, 01/12/2012 - 18:47 | 2060068 Freddie
Freddie's picture

Hey checkout that Fairholme Fund also owns CIT (factor) who are not going to factor for Sears anymore.  He invests in Tarp or Buffett INc.

Thu, 01/12/2012 - 14:07 | 2058945 JPM Hater001
JPM Hater001's picture

Now you can buy Sears on bluelight special at KMart... who is also available in a twin pack.

Thu, 01/12/2012 - 14:00 | 2058899 hedgeless_horseman
hedgeless_horseman's picture

 

 

which is now purely a function of momo chasers in either direction

Tyler, please, the politically correct term is, "friends of trends."

Thu, 01/12/2012 - 14:04 | 2058924 prains
prains's picture

Home Sheepo about to be flooded with extra shitty dewalt power tools

Thu, 01/12/2012 - 13:57 | 2058890 slaughterer
slaughterer's picture

If you look at trade flow and P/C ratio, many are bullish on SHLD.  

Thu, 01/12/2012 - 14:00 | 2058905 Hippocratic Oaf
Hippocratic Oaf's picture

If anyone has any balls, SEARS secured corportes are trading hi-70's with a workout somewhere tween 90-100.

Backed by inventories and receivables. 812350AE6

Thu, 01/12/2012 - 17:34 | 2059873 Freddie
Freddie's picture

Those inventories will probably need about a 50% markdown on clothing.   Most Sears shoppers anymore can try to pay with food stamp credit cards.

Thu, 01/12/2012 - 14:19 | 2058983 Randall Cabot
Thu, 01/12/2012 - 14:19 | 2058986 Ruffcut
Ruffcut's picture

So much for the market "durable goods" numbers. I bought appliances at sears for they had the best selection.

They are falling victim to too many people with too few dollars and that magic credit line.

Now if they can sell some more stock to raise cash like many do, but they don't seem to be any where near being a global concern.

The put option IV, implied Vol, is 40% higher than calls. I don't see a play but would not want to be holding this shitbag. Maybe robo can tell us how bullish they are.

I remember the good old days when I scooped off some coin off circuit city.  Maybe exxon can buy them, like they did montgomery wards. Sears is the next monkee wards.

Thu, 01/12/2012 - 14:22 | 2059001 ajax
ajax's picture

 

Buffet to the rescue?

Thu, 01/12/2012 - 13:45 | 2058841 Prairie Fire
Prairie Fire's picture

If they had rated them at below default I'd be impressed.

 

Thu, 01/12/2012 - 13:58 | 2058897 DosZap
DosZap's picture

There goes your DIE HARD warranties........................

Thu, 01/12/2012 - 13:45 | 2058842 francis_sawyer
francis_sawyer's picture

...next up... HIGHEST RATING BELOW DEFAULT (so Eddie Lampert has that going for him)...

Thu, 01/12/2012 - 14:03 | 2058896 Hansel
Hansel's picture

I heard Eddie Lampert is the next Warren Buffett...

Thu, 01/12/2012 - 14:11 | 2058954 Jay Gould Esq.
Jay Gould Esq.'s picture

Ha -- Hansel cracked the case: a while back, Cramer was beside himself proclaiming SHLD as potentially, "the next Berkshire Hathaway." Laughable, the predictable patterns of these media lemmings.

Thu, 01/12/2012 - 14:26 | 2059012 Frank N. Beans
Frank N. Beans's picture

yeah i remember when Cramer was all over SHLD after his buddy Lampert bought it out; Cramer extolled Eddie to no end over his genius at buying up all that dirt-cheap Sears and Kmart real estate.  Yeah, Eddie was probably waiting to unload it all when RE came back up, but it never did. 

Has Cramer ever come back to say, "sell sell sell!!!"???

Cramer, eat my shit.

 

Thu, 01/12/2012 - 17:42 | 2059888 Freddie
Freddie's picture

What is with this Lampert - Buffett- Bruce Berkowitz (Fairholme) connection???   Fairholme owns Sears, AIG, Buffett's stock, Bank of America, Citigroup,

Seems like a TARP/Buffet portfolio.

My guess is Buffet will buy some of Sears real estate,

Fri, 01/13/2012 - 07:46 | 2060948 Chuck Walla
Chuck Walla's picture

Circle jerks....

Thu, 01/12/2012 - 13:46 | 2058844 Ese Pinche
Ese Pinche's picture

BTFD bitchez

Thu, 01/12/2012 - 13:47 | 2058848 kralizec
kralizec's picture

They cannot liquidate enough to plug all the holes taking on water...

Stick a fork in 'em.

Thu, 01/12/2012 - 13:47 | 2058849 LongSoupLine
LongSoupLine's picture

 

 

"Hmmm, I know Sears sells printers...I have an idea that's worked on other insolvent failures, so hear me out..." - The Bernank

Thu, 01/12/2012 - 13:47 | 2058850 Theta_Burn
Theta_Burn's picture

I love Sears

One of the best box stores IMO...RIP

Sad days for America

Thu, 01/12/2012 - 13:55 | 2058882 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Have you been in a Sears lately?  They sell crap.  Kimmy K klothing line, Shakira perfume, fake jewelry, overpriced cookware, overpriced furniture; it's all crap.

Thu, 01/12/2012 - 13:59 | 2058901 francis_sawyer
francis_sawyer's picture

Let's invite in TRAV to tell us who shops at Sears...

Thu, 01/12/2012 - 15:10 | 2059215 Kinskian
Kinskian's picture

Sleepy-eyed Mexicans make up the majority of shoppers at the local Sears, and they don't appear to be doing much buying.

Thu, 01/12/2012 - 17:48 | 2059898 Freddie
Freddie's picture

Shopping for Oba voters in stores owned by Oba voters.

Thu, 01/12/2012 - 21:14 | 2060306 HedgeCock
HedgeCock's picture

Prince Edward Islanders?

Thu, 01/12/2012 - 14:00 | 2058906 MachoMan
MachoMan's picture

They sell some very decent hand tools, yard tools, and accessories...  and, quite often, at door buster prices...  if you're inclined to wait for the deals.

Thu, 01/12/2012 - 14:06 | 2058911 Theta_Burn
Theta_Burn's picture

Yes its true that they headed down the Kmart path.

Hence the CDS vultures circling

Guess I'm waxing nostalgic of the past 30yrs before the move from quality to quantity.

Kinda like our government

Thu, 01/12/2012 - 14:20 | 2058993 aerojet
aerojet's picture

Not to mention the rip-off artists hawking car repairs and tires.  Although that's normal for the entire automotive repair industry these days.

Fri, 01/13/2012 - 07:51 | 2060952 Chuck Walla
Chuck Walla's picture

@ Aerojet

 

I did that while going to college. I felt dirty everytime I got there for work, a den of thieves,  Left after 6 months, this was before I knew that this is how nearly every business worked. Take advantage every chance you get.

Thu, 01/12/2012 - 13:55 | 2058884 Caviar Emptor
Caviar Emptor's picture

Yep. Agree. And their wekaness reflects a big weakness in a critical nitch: US mid-market consumers. Serious weakness where it counts. Biflation taking its toll. Ripple effects to follow. 

Thu, 01/12/2012 - 13:47 | 2058851 francis_sawyer
francis_sawyer's picture

I'm just waiting for the day that Howard Cunningham's Hardware Store (from 'Happy Days'), buys them out...

Thu, 01/12/2012 - 13:47 | 2058853 ZeroPower
ZeroPower's picture

EBITDA down 40% on an LTM basis... nothing more to say,i it's death for any retail name.

Thu, 01/12/2012 - 15:27 | 2058925 AccreditedEYE
AccreditedEYE's picture

I remember Howard Davidowitz calling this YEARS ago on a Bloomberg radio interview. The show host was talking to him like he was a child unable to comprehend the "genius" of Lampert's financial engineering. Somewhere, he is smiling to himself and hopefully making a killing on a SHLD short position. As an aside, who would have thought 2 ex-Squid employees actually could be at ODDS with each other instead of in BED with each other.... Brings a tear to the ol EYE.

Thu, 01/12/2012 - 13:48 | 2058855 GeneMarchbanks
GeneMarchbanks's picture

Sean Egan = Honeybadger.

Thu, 01/12/2012 - 13:50 | 2058868 Gubbmint Cheese
Gubbmint Cheese's picture

honeybadgers don't give a shit.. Oo look - he's eating a snake!

Thu, 01/12/2012 - 13:48 | 2058857 riphowardkatz
riphowardkatz's picture

In other news zerohedge didnt make the Homeland Security list. Kind of insulting.

Thu, 01/12/2012 - 13:57 | 2058888 Theta_Burn
Theta_Burn's picture

I'm confident ZH and discussed subject matter IS on thier list, it's just the 1 your not allowed to see...

Thu, 01/12/2012 - 14:07 | 2058944 Rainman
Rainman's picture

J.E. Hoover is dead. The ' files ' live forever.

Thu, 01/12/2012 - 14:26 | 2059014 ajax
ajax's picture

 

J.E. Hoover is a dead homosexualist. F--- that closeted, dangerous, vindictive piece of shit forever.

Thu, 01/12/2012 - 14:04 | 2058927 DosZap
DosZap's picture

riphowardkatz

In other news ZH didnt make the Homeland Security list. Kind of insulting

IF you believe that, I have some Swampland in So Tx for sale.The numbers prnted are the size of a gnat turd compared to who is being watched,and recorded.

Why Drudge?, I mean really,HuffPo???................frigging jokes.

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