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.
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.