Another year, another liquidity plan for Sears Holdings Corp.
The troubled retailer said it has raised $100 million in new financing, and is seeking an additional $200 million from others. The company also is taking actions to “further streamline its operations,” including cost reductions of $200 million on an annualized basis in 2018 separate from store closures.
Rob Riecker, the company’s chief financial officer, said, “As previously announced, we are actively pursuing transactions to adjust our capital structure in order to generate liquidity and increase our financial flexibility.”
Edward S. Lampert, chairman and chief executive officer, said the company “made significant progress in 2017” through efforts to “reset our cost base and enhance our liquidity.” Those efforts include an agreement with the Pension Benefit Guaranty Corp. to pre-fund its contributions to its pension plan for the next two years.
Lampert also reiterated the company’s determination to “remain a viable competitor in the challenging retail environment.”
In connection with the $100 million raise, the company has amended its existing second lien notes that mature on Oct. 15, 2018 to increase its borrowing base advance rate for inventory to 75 percent from its current 65 percent. The amendment also defers the collateral coverage test and restarts it with the second quarter of 2018, with the impact that no collateral coverage event can occur until the end of the third quarter of 2018.
The company said that the $100 million raise was supported by ground leases and select intellectual property. Sears said it can use the same collateral under certain situations to raise an additional $200 million.
Another move involves negotiations with certain lenders to improve the terms on “potentially more than $1 billion of its non-first lien debt.”
Sears is pursuing a secured credit facility – a $407 million first lien tranche and a second lien tranche of up to $200 million – backed by the 138 properties that are currently subject to the ring-fence agreement with the PBGC. The company said the aggregate appraised value is $985 million.
Sears last week said it would shutter another 103 stores, mostly between February and March. The retailer said the stores together generated $850 million in sales, but were among its lowest performing locations and had an average gross margin rate of 400 basis points lower than its ongoing stores. It said it will continue to assess the productivity of its Kmart and Sears stores, opening the door for more store closures.
The holding company also said comparable store sales at its two nameplates posted a decline of 16 to 17 percent for the first two months of the fourth quarter of 2017. The decline was 14 to 15 percent after adjusting for the closure of certain pharmacy locations in open stores and the reduction in its consumer electronics assortment.