Sears Holdings has raised $100 million in new financing and is pursuing an additional $200 million. In addition, Sears Holdings has amended its existing second lien notes, maturing October 15, 2018, to increase its borrowing base advance rate for inventory and defer its collateral coverage test and restart it with the second quarter of 2018. The company is in discussions with certain lenders regarding additional transactions to improve the terms on potentially more than $1 billion of its non-first lien debt.
Edward S. Lampert, chairman and CEO of Sears Holdings, said, “We made significant progress in 2017 through our efforts to reset our cost base and enhance our liquidity, as well as our recently announced agreement with the PBGC to pre-fund our contributions to our pension plan for the next two years. The initiatives we have announced today build on those achievements and make clear our determination to remain a viable competitor in the challenging retail environment.
The financial transactions we are pursuing and incremental cost actions are designed to accelerate our return to profitability and enable Sears Holdings to increase our investment in the most promising opportunities in our enterprise, including our Shop Your Way network and our Sears Home Services business.”
Sears closed a $100 million term loan, supported by ground leases and select intellectual property. Under certain circumstances and with the consent of the lender, the company will be entitled to raise an additional $200 million against the same collateral. According to a related 8-K filing, JPP, an affiliate of Sear’s Chairman Edward Lampert’s hedge fund ESL investments, agented the loan.
The term loan facility also contains an uncommitted incremental loan feature that, subject to the satisfaction of certain conditions, would permit up to an additional $200 million to be borrowed from other counterparties and secured by the same collateral as the initial loan under the term loan facility.
Sears Holdings has amended the borrowing base definition in the indenture relating to the company’s second lien notes, maturing October 15, 2018, to change the advance rate for inventory to 75%, increased from 65%. The amendment also defers the collateral coverage test for purposes of the repurchase offer covenant in such indenture and restarts it with the second quarter of 2018 (such that no collateral coverage event can occur until the end of the third quarter of 2018). The company has also made corresponding amendments to its second lien credit agreement.
In addition, the company is in discussions with certain lenders regarding additional transactions to enhance its liquidity and strengthen its balance sheet through a series of agreements that would improve the terms on potentially more than $1 billion of its non-first lien debt, including significantly reducing cash interest expense and extending the maturity of some of that debt.
Sears is also continuing to pursue a secured credit facility, consisting of an approximately $407 million (net of associated costs) first lien tranche and a second lien tranche of up to $200 million, secured by the 138 properties currently subject to a ring-fence arrangement with the Pension Benefit Guaranty Corporation. The 138 properties have an aggregate appraised value of approximately $985 million.
Sears Holdings will continue to strategically evaluate the productivity of its Kmart and Sears stores as the company transforms its business model so that its physical store footprint and its digital capabilities match the needs and preferences of its members. In addition, Sears Holdings will continue to evaluate strategic options to unlock value from its real estate portfolio, as well as its Kenmore and DieHard brands and its Sears Home Services and Sears Auto Centers businesses, as well as continue to seek other potential sources of capital.
