Edward Lampert, chairman of Sears Holdings Corp. and its top shareholder, ESL Investments, have found a way to guarantee shipments by vendors to Sears and Kmart units, even as apparel is being pulled from a small number of Sears stores.
The company said in its annual report, or Form 10-K, filed with the Securities and Exchange Commission on Wednesday, that ESL inked a deal with a financial institution on Jan. 26 to acquire from the unnamed firm a participating interest in certain rights and obligations under “trade receivable put agreements.”
Essentially the rights generally don’t spring until Sears has filed for bankruptcy, after which the financial institution will buy the vendors’ accounts receivable for goods or services sold to Sears. ESL in turn may choose to purchase an 80 percent participating interest in the rights arising under future trade receivable put agreements. The deal is strictly between ESL and the financial institution. The regulatory filing said that, as of Jan. 28, ESL holds participating interests totaling $93.3 million.
Sears is not a party to any of the agreements. The retailer is the beneficiary of the agreements as they guarantee payment to vendors should the company file for bankruptcy.
A spokesman for Sears said, “Obviously, we do not speak for ESL, but we see this as a sign of ESL’s continued confidence in our company.”
ESL and Lampert together hold a 62 percent stake in Sears’ equity. The two also own $350 million of the retailer’s outstanding debt for fiscal year 2011 ended Jan. 28.
Sears since January has been plagued by factoring issues for trade receivables. Many of those orders pertain to apparel, which comprises a smaller slice of the retailer’s merchandise offerings when compared with its hardlines inventory.
Separately, the spokesman said a small number of Sears stores are reallocating floor space to better meet the needs of local shoppers. “Additional details on those categories will be available as we get closer to the transition, but we can confirm at this time that a larger array of mattresses and recliners are among the more popular items being offered. Sears clothing and related categories will still be offered to local customers on sears.com, with previews of our top fashion brands and trends from around the world found at searsstyle.com,” he said.
A credit analyst, who noted that the number of stores slated to lose apparel is under one dozen sites, called the move “no big deal.”
Sears said in December it planned to close between 100 and 120 Kmart and Sears full-line stores, or roughly 5 percent of its 2,200 full-line store sites.