Sears Holdings has hired advisers to prepare a Chapter 11 bankruptcy filing that could come as soon as this week, according to The Wall Street Journal. Additionally, the company has contacted banks to arrange the debtor-in-possession financing necessary to operate during the filing, according to CNBC.
Sears has a $134 million debt payment due Oct. 15 that it previously said it may not be able to cover.
Sears continues to discuss other options and could still avert an in-court restructuring. The most recent proposal from CEO Eddie Lampert includes selling off $1.54 billion in real estate and $1.75 billion in additional assets, such as the Kenmore brand and its home services branch.
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Lampert also proposed to creditors that they restructure approximately $1.1 billion of debt coming due in 2019 and 2020.The restructuring plan, if approved by the board and creditors, would reduce Sears’s roughly $5.5 billion in debt to approximately $1.24 billion.
Saying Sears has done poorly in recent years is a vast understatement. The retailer’s last profitable year was 2010, with the company experiencing more than $11 billion in cumulative losses since 2011. Annual sales have dropped nearly 60% in that period, to $16.7 billion.
The struggling retailer, which operates the Sears and Kmart chains, saw a combined $508 million in Q2 net losses, doubling the $250 million loss of the year prior. Total comparable store sales for the company declined 3.9% during the quarter, with Kmart same store sales declining 3.7%, and Sears comparable store sales declining 4.0%. Overall, net sales dipped 11.9%.
Lampert has kept the company afloat with much of his own money through his investment fund, ESL Investments, even offering to buy Kenmore via the hedge fund for $400 million. But at the same time, Lampert has sold off some of what were considered the strongest assets of the Sears brand.Sears spun off the Lands’ End brand into a public company in 2014, selling 235 locations to a real estate investment trust that Lambert chairs in 2015. Early in 2017, the retailer sold the Craftsman brand to Stanley Black & Decker for $900 million in another desperate attempt to raise cash.
Industry analysts have heavily criticized these decisions — and by extension, Lampert himself — largely because the value of Sears as a brand diminishes every time it sells off a major asset. In cases where ESL Investments buys the asset off Sears, such as the potential Kenmore deal, Lampert would still own the property and make money on it despite the retailer’s continued financial difficulties. To make matters worse, since most of the money Sears makes on these deals is used to pay off debts, the company can’t put significant capital toward reinvesting in its stores.
Lampert owns a controlling ownership stake in Sears at 31%, while ESL Investments owns 19%. The company’s stock plummeted more than 35% below $0.40 per share on Oct. 10 in the hours after the reports came out.
