Sears Halted, Plunges After Report Vendors Halts Shipments

Is this the beginning of the end for Eddie Lampert's exercise in financial engineering that is Sears Holdings Corp? Bloomberg reports that three of the biggest insurance firms for Sears' suppliers are seeking to reduce coverage... which has led to:


The stock has been halted twice on volatility limits and is down 10% for now. SRAC 5Y CDS are offered at ~39% upfront, implying around a 87% probability of default.


As Bloomberg reports,

Three of the biggest insurance firms for Sears Holdings Corp.’s suppliers are seeking to reduce coverage, prompting at least one medium-sized vendor to halt shipments to the department-store chain, people with knowledge of the matter said.


Euler Hermes Group, one of the top providers of credit insurance to vendors, has been sending out cancellation notice , according to the people, who asked not to be identified because the information isn’t public. Coface SA has indicated that it intends to do the same, two of the people said. Atradius Credit Insurance, another of the insurers, said it’s scaling back coverage, though the firm hasn’t yet pulled policies.


The situation has spurred one supplier to withhold products from Sears after a recommendation from its credit department, according to an e-mail obtained by Bloomberg News. The vendor, a closely held company, asked not to be named.


Suppliers rely on credit insurance to protect themselves against not getting paid for products they ship to retailers. For Sears, which has posted 30 straight quarters of declining sales, the shrinking support from insurers may make it harder to stock products and execute a comeback.


David Huey, the president and regional director of U.S., Canada and Mexico for Atradius in Baltimore, said the firm is decreasing its Sears supplier coverage “as the problems have become more obvious.”


“We’ve reduced as we’ve seen the risk increase,” he said in an interview. Though no policies have been canceled, “it could happen,” he said. “We’re reviewing it regularly.”

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