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story.lead_photo.caption Shoppers enter a newly renovated Sears Holdings Corp. store in Oak Brook, Ill., on Oct. 14, 2018.

For once, Eddie Lampert is keeping his wallet in his pocket.

Sears is closing in on a deal with new lenders to finance it through its bankruptcy, according to a person with knowledge of the situation. Lampert and his hedge fund, ESL Investments, won't be participating.

Then there's the retail chain's plan, announced last week, to auction off the highest-performing stores starting in February at the latest. It paves the way for Lampert, Sears's chairman and former chief executive officer, to potentially hold on to the best parts of the retail empire by paying with debt rather than cash.

Sears, once the dominant U.S. retailer, filed for bankruptcy protection Oct. 15 after years of decline. Investors, vendors, customers and some 89,000 employees have been watching Lampert, the biggest equity owner and a top debtholder, for cues to the company's fate.

They wouldn't be faulted if they expected Lampert to propose a reorganization plan that would keep Sears intact through bankruptcy. But that likely would have obligated him and his hedge fund to chip in fresh cash.

Lampert's hedge fund, along with partners, was originally expected to provide the so-called junior debtor-in-possession loan that will double the retailer's financing to $600 million. But it's now funded entirely by other lenders. The deal for increased bankruptcy financing was first reported by Reuters.

Under the debtor-in-possession loan, Sears is required to name a primary bidder by Dec. 15 for its "go-forward stores" -- the viable retail outlets that are expected to be Lampert's focus.

As one of Sears's biggest secured creditors, Lampert may be able to make a so-called credit bid, which means he would trade the debt he holds for ownership instead of making an all-cash offer.

That route would probably allow him to leave behind obligations like pension and lease liabilities and vendor claims as he hand-picks a selection of profitable stores to keep open.

A representative for ESL Investments declined to comment on the fund's strategy, as did a representative for Sears.

In its first asset sale since its bankruptcy filing, Sears tentatively agreed Saturday to sell its home-improvement unit to Service.com for $60 million.

In motions filed Thursday night, Sears's lawyers laid out proposed rules for how it plans to sell assets, emphasizing the need for urgency.

"It cannot be overemphasized that time is of the essence," Sears's lawyers said. The case "must progress with all deliberate speed to stem the substantial operating losses that will continue to decrease the value of the debtors' estates."

Sears is next expected in court Nov. 15, when it will formally present its plan to keep the lights on through the Christmas season. The new cash is crucial to that plan given the rate at which the company is spending, Sears lawyer Ray Schrock of Weil Gotshal said Oct. 15.

"When you look at the cash burn associated with the overhead of the enterprise, it's really something where things have to move very quickly," Schrock said. "It really has to happen on an expedited time frame."

Information for this article was contributed by Steven Church of Bloomberg News.

Business on 11/07/2018

Print Headline: Chief to keep cash in Sears debt plan

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