sears

Edward Lampert is continuing to serve the dual role of Sears Holding Corp.’s chief executive officer and its checkbook.

The retailer entered into an amended loan agreement with JPP LLC and JPP II LLC, entities controlled by Lampert’s hedge fund ESL Investments Inc., for an additional $100 million in financing, bringing Sears’ debt to Lampert up to $499.4 million for the year. The amount looks to be an effort to finance the holiday needs of Sears and Kmart as it must be drawn in full by the first week in December.

The additional loan matures, or is due to be repaid, by April and has an annual interest rate of 11 percent. It’s secured by a priority lien on 61 properties owned by Sears, and in effect, Lampert. The original loan amount matures July 2020.

A Sears spokesman rejected the idea that the cash infusion signaled any difficulty for the retailer’s promised “return to profitability” and said it intends to repay the loan when it comes due.

“We continue to focus our actions to provide the company with additional financial flexibility to generate liquidity and demonstrate our ability to manage our business while meeting all of our financial obligations,” the spokesman said.

But the financial industry isn’t certain of the retailer’s future. Fitch Ratings in August put the retailer on its “bonds of concern” list and said a default on its $1.14 billion in outstanding bonds is likely to come sometime next year. Its next interest payment is due Oct. 15.

Christina Boni, a senior analyst with Moody’s Investor Service, didn’t go so far as to predict bankruptcy for Sears, but she pointed to her agency’s Caa2 rating of the retailer, “which implies a significant probability of default within the next two years.”

She noted that Sears is estimated to need at least $1.5 billion to continue to function next year “in spite of their initiative to reduce costs and improve profitability.” If that cash burn rate doesn’t improve in the coming months, Boni said 2018 will be “challenging,” but she didn’t dismiss the fact that Lampert seems keen to keep financially propping up the company, which maintains “solid collateral.”

Sears’ spokesman reiterated the company’s position that it has made “significant progress” with its strategic restructuring aimed at realizing $1.25 billion in cost savings by the end of this year. The restructuring has focused on the steady selling off of Sears’ assets, including $460 million in real estate so far this year, and the $525 million sale of its well-known Craftsman brand.

Sears has also recently closed 150 stores on top of hundreds more closures over the last decade, and said in August that another 28 Kmart locations would be closed by the early December. At least 400 staffers, including several at the executive level, were laid off earlier this year.

Despite these moves, Sears’ retail business continues to deteriorate. Its most recent quarterly financials showed revenues down 22.9 percent to $4.37 billion, merchandise sales down 24.7 percent to $3.5 billion and comparable sales down 13.2 percent and 9.4 percent and Sears and Kmart stores, respectively.

While Sears this year inked a deal with Amazon to sell smart appliances in-store and apparel company Regatta Great Outdoors, these efforts seem almost perfunctory relative to the continued decline of its retail business.  

Speculation of bankruptcy has been following Sears for some time, and the normally coy company even warned in June that its ability to continue as a going concern was shaky as it didn’t have enough cash to keep operating through 2018.

The June move by Sears Canada to seek the Canadian version of bankruptcy protection didn’t help matters. Although the company was spun off from Sears Holdings in 2012, it maintains a 11.7 percent stake and Lampert’s ESL holds 45 percent.

Paula Rosenblum of RSR Research said then that Sears Canada could serve as “a blueprint” for a Sears Holdings bankruptcy in the U.S.

Sears’ total debt is already at $4.23 billion, more than $1 billion of which is due within the next year, while its current market capitalization sits at only $722 million, according to data from Capital IQ.

It’s unclear exactly how much of Sears’ debt is owned by Lampert or his entities, but he’s continued to finance the company as it steadily declines and shrinks. In July, ESL Investments issued Sears a $200 million credit line, after financing in 2016 a $300 million loan and part of another $500 million loan. It also loaned Sears $400 million in 2014.

Lampert has taken a defensive public stance regarding the health of Sears, which lost $2.2 billion in 2016 alone, and has blamed the media’s “selective” and “biased” reports for some of the retailer’s troubles.

When a shareholder suggested in May that Lampert was in denial about Sears’ future, the ceo offered: “A lot of people who have been in denial, in some people’s view, eventually broke through.”

For More, See:

Sears’ Lampert Takes Aim at Opportunistic Vendors

Sears’ New Cost-Cutting Efforts Not Enough for Wall Street

Financial Maneuvers Help Sears Stay Afloat; Merchandise Issues Remain

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