Sears Prepares For Liquidation As Lampert's 11th Hour Bid Fails

Sears Holdings Corp is readying plans for a liquidation after Chairman Eddie Lampert's bid to pull approximately 425 stores out of bankruptcy was rejected, according to Bloomberg, citing people familiar with the matter. 

Lampert offered a $4.6 billion package backed by lenders Bank of America and Citigroup, as well as a new participant in the deal - Royal Bank of Canada. The three institutions offered to provide a $950 million basset-backed loan and $350 million revolving line of credit to back Lampert's bid, which would secure the jobs of roughly 50,000 workers of the company's 68,000. 

According to Bloomberg's sources, there were gaps in Lampert's financing package and the plan would not have provided enough cash to cover bankruptcy-related costs. It also undervalued inventory and other assets compared to what liquidators were promising to pay. 

Part of Lampert's bid relied on the forgiveness of $1.3 billion of Sears debt held by his hedge fund, ESL Investments Inc.

The retailer started laying the groundwork for a liquidation after meetings Friday in which its advisers weighed the merits of a $4.4 billion bid by Lampert’s hedge fund to buy Sears as a going concern, said the people, who asked not to be identified because the discussions are private. If the 125-year-old retailer does die in bankruptcy -- like Toys “R” Us in 2018, and Borders Group Inc. in 2011 -- it would mark the largest fatality yet in the retail apocalypse prompted by a shift to online shopping. -Bloomberg

Unfortunately for Eddie, much of his bid relied on him getting ownership of the reorganized business - however the validity of his debt has been called into question after several creditors challenged ESL, while no cash backstop was provided in case this fell through. 

ESL claims its liens are valid after they extended over $2.4 billion of secured financing to keep Sears' head above water. 

Last chance?

While Lampert's bid was rejected, ESL still has until a Tuesday status hearing to amend the package with last minute improvements. Lampert has also floated a backup plan in which ESL would buy some of Sears' components - including real estate and intellectual property such as the brand itself. 

Sears closed about 140 stores back in October when it initially filed for Chapter 11 bankruptcy protection with $11.34 billion in debt. The retailer also announced in November that it would close an additional 40 unprofitable stores by February 2019. It was the second largest bankruptcy ever, according to Bloomberg, following that of real estate firm Capmark Financial Group with $21 billion in liabilities. The Toys "R" Us bankruptcy ranks third at around $8 billion in debt. 

Sears has pushed forward with the hope that it could restructure with a smaller group of more profitable stores. The bid Lampert submitted in late December intended to keep 425 stores open, while preserving up to 50,000 jobs.

But as representatives for the company -- along with creditors and other parties -- met in New York on Friday to assess the merits of the bid, they found a number of shortcomings, people with knowledge of the discussions said. -Bloomberg

The closure of an additional 80 Sears and Kmart stores will be completed by late March 2019. Liquidation of the stores is expected to start in mid-January, according to the company. A full list of store closures can be seen here.