Sears Holdings Corp. is expected to increase its cash burn rate by $200 million in 2017.
That’s the prediction from Fitch Ratings, which is forecasting the cash burn rate to be “$1.6 billion in 2016 and $1.8 billion in 2017, presuming $250 million in annual working capital benefit from store closings and less inventory buys.”
That forecast was disclosed in a report from the ratings agency in which Fitch affirmed the long-term issuer default ratings on Sears Holdings Corp., but downgraded the senior unsecured notes of Sears Roebuck Acceptance Corp.
Fitch said Sears’ interest expense, capital expenditures and pension plan contributions are expected to total $800 million in 2016, and “potentially” increase to $1 billion in 2017.
The long-term issuer default ratings on Sears remains at “CC.” The senior unsecured notes for Sears Roebuck Acceptance Corp. were downgraded to “C/RR6” from “CC/RR4.”
A spokesman for Sears said, “We believe that we have sufficient resources to support our operations and meet all of our financial obligations.”
Fitch said it expects Sears’ comparable store sales to be negative 8 percent in 2016, and in the negative mid- to high-single-digit range for 2017. The ratings agency also said it expects top-line to fall 12 percent to 13 percent in both years as Sears continues to close stores. That would push “EBITDA to be negative $950 million to $1 billion in 2016 and 2017, compared with a loss of $836 million in 2015,” Fitch said.
As for funding 2017 liquidity needs, Fitch cited the recent $500 million real estate backed loan, and estimated that Sears still owns about 190 unencumbered Kmart discount and Sears full-line mall stores. It noted that as of the third quarter ended Oct. 29, Sears owned 171 full-line Sears stores and 87 Kmart stores, excluding 125 Sears full line mall stores in a bankruptcy-remote vehicle and 20 specialty stores.
Sears has said it would market certain real estate properties with the goal of raising more than $1 billion. The company earlier this month said it would sell its Craftsman tool business to Stanley Black & Decker for $900 million, although it still has to obtain approval from the Pension Benefit Guaranty Corp. to complete the deal. That’s because Sears had agreed to give the PBGC a springing lien on its three core brands — Kenmore, Craftsman and DieHard — in connection with the underfunding of its pension plan.
Sears continues to explore its options for the Kenmore and DieHard brands, as well as for its Sears Home Service and Sears Auto Centers businesses.