Moody’s Investors Service is keeping a close eye on Sears Holdings Corp.’s plan to spin off the Lands’ End business.

This story first appeared in the December 11, 2013 issue of WWD. Subscribe Today.

The debt watchdog took no immediate action, but said Tuesday the divestiture proposed last week could have “negative credit implications” for Sears. The retailer has a corporate family credit rating of “B3,” indicating that its debt is “subject to high credit risk.”

“Given the weak operating performance of Sears Holdings, the lack of any visibility on an improvement in operations, and its sizable negative cash flow, the loss of the Lands’ End assets and earnings streams will result in further weakening for creditors at this critical juncture,” Moody’s said.

“Absent a recovery in Sears’ operating performance beyond our current expectations — a stabilization of earnings in the second half of 2013 — we would anticipate that a spin-off of Lands’ End with limited cash proceeds would likely result in the rating outlook being revised to negative from stable due to the loss of value to Sears from the spin-off of the Lands’ End business,” the ratings agency said.

Sears, however, retains a significant asset base, including a 51 percent stake in Sears Canada, real estate holdings and doesn’t face any meaningful debt maturities until 2018.