By  on May 30, 2018

Even Sears Holding Corp.'s top cheerleader is making some noise about its weaknesses.Edward S. Lampert, chairman and chief executive officer of Sears, highlighted the company's liquidity problems as part of his effort to strip away another piece of the ailing retailer.Lampert, who is also chairman and ceo of Sears' majority shareholder, ESL Investments Inc., requested permission to speak with other interested parties as he seeks to acquire the Kenmore brand and other assets from Sears.Lampert said those talks would “allow us to put forward a definitive proposal that will result in the most benefit to Sears.”And Sears could use some help.“Speed and certainty here are critical," Lampert said in a letter to the company's board on Friday. "It is imperative that the special committee allow us the ability to find a partner in accordance with the timeline necessitated by the liquidity needs of the company.”Lampert said ESL has received "numerous inbound inquiries from potential partners" and that finding the right partner would be a critical factor in any definitive proposal.The letter was disclosed in a regulatory filing on Tuesday. A Sears Holdings spokesman declined comment on ESL’s request.Last month, ESL offered to acquire the well-known Kenmore appliance brand as well as the home improvement and PartsDirect businesses of Sears Home Services. The value of the home and parts businesses was pegged at $500 million. ESL also said it would be interested in acquiring certain real estate assets for $1.2 billion.Sears hired Centerview Partners as its investment banker, and said that it would consider the ESL proposal and also “explore any other alternatives with respect to the sale assets that may maximize value for the company.” The committee, composed of independent directors, can also solicit interest from other potential buyers.In Friday’s letter, Lampert said the planned proposal would involve a “set of holistic changes necessary to improve Sears’ capital structure.” That thinking included a recapitalization that would reduce Sears’ debt. But Lampert also noted that in the past month the “significant increase in the market price of Sears’ unsecured debt” would make the contemplated exchange of debt for equity and debt repurchases “less attractive and more difficult to effect.”For instance, the company's 8 percent senior unsecured notes coming due in December 2019 were trading at 60 cents on the dollar late last week, up from 38 cents when Lampert jumpstarted the process to sell Kenmore, according to S&P Capital IQ. About $411 million of that debt is outstanding, although Sears overall has total debt of about $4.4 billion and is not currently generating enough money to keep up with payments indefinitely.Given the circumstances, Lampert requested that the special committee “reconsider the limits that it has place on ESL’s ability to engage with potential partners.” Lampert added that the committee can still foster a competitive process by allowing ESL to speak with others who “are not engaged in substantive discussions” with the special committee. Lampert noted that procedural safeguards, such as the “go-shop” provision and approval by a majority of disinterested shareholders — both requested by ESL — should give the committee confidence that it is getting the best outcome for Sears.The initial April letter said Lampert would not participate on the Sears side of any discussions with ESL to keep those talks at arm’s length. Sears subsequently said Kunal S. Kamlani, president of ESL and a Sears board member, also would also sit out the talks.The most-recent regulatory filing with the Securities and Exchange Commission on Friday shows that Lampert and ESL hold a 73.6 percent interest in Sears Holdings through a combination of stock, various PIK Toggle Notes and Warrants.Sears has tried to sell the assets that ESL is proposing to acquire for nearly two years. There’s been speculation in the financial sector that the asking price for certain assets was too high. And Lampert has emphasized — most recently at Sears Holdings’ annual shareholders’ meeting this month — that he continues to plan for Sears to return to profitability, even if it means shedding more stores. But Friday’s letter also wasn’t the first time this year that he has raised liquidity concerns at Sears Holdings.Lampert told investors at the shareholders’ meeting: “We need liquidity….This company needs to make money. It’s going to continue to shrink until it does.”Shares of Sears Holdings on Tuesday closed down 1.4 percent to $3.44 in Nasdaq GS trading.

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