Sears Creditors Push For Bankruptcy Liquidation As Vendors No Longer Paid

Last month, the CEO proposed an out-of-court restructuring that would slash more than $1 billion from Sears’s $5.5 billion debt load, divest another $1.5 billion of real estate and sell $1.75 billion of assets, including the Kenmore appliance brand, which Mr. Lampert offered to buy for $400 million.

The Sears board decided not to move forward with the Kenmore transaction, after it became clear this week that Mr. Lampert’s broader restructuring plan wasn’t winning support from creditors, another person said. That prompted the company to seek emergency financing from its lenders.

Although Mr. Lampert’s hedge fund, ESL Investments Inc., has sunk hundreds of millions of dollars of loans into Sears, the company also has borrowings with the major banks as well as some prominent investors. As of September, Sears lenders also included Cascade Investment LLC, which manages the fortune of Microsoft Corp. co-founder Bill Gates, and hedge fund Fairholme Capital Management, whose manager Bruce Berkowitz left the Sears board last year.

Meanwhile, indicating that a bankruptcy is all but assured, Reuters reported that Sears has started to miss payments to vendors as it runs out of liquidity. Three vendors told Reuters that Sears had missed scheduled payments to them in the last couple of weeks.

“We went into business with them with our eyes open and knew this day would come one day,” said Arnold Kamler, CEO of Parsippany, New Jersey bike maker Kent International Inc. Kamler said he has withheld a shipment to Sears after it missed a regular payment last week for the first time.

Once Sears files for bankruptcy, stocking shelves adequately would prove key to escaping liquidation. Both vendors and creditors will be looking at the retailer’s sales performance during the holiday season in deciding whether to continue to back it, sources have said.

“If consumers walk into a store and there is empty shelves, it lowers consumer confidence and that is what has ultimately happened,” said Brett Rose, CEO of United National Consumer Suppliers, a wholesale distributor of overstocked goods such as garden tools, beauty products and toys.

“If you can go to and get Craftsman tools, why do you have to walk into a Sears,” said Rose.

Of course, shelves would not have to be stocked if, as creditors demand, the company files Chapter 7 preserving stakeholder value for secured creditors, however resulting in a shockwave among the various malls in which Sears' hundreds of stores are located as all of these would be promptly shuttered with the company's remaining lease obligations falling in limbo.

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