Sears Holdings Corp. has disclosed that it takes in $210 million in weekly receipts since it filed its voluntary Chapter 11 petition for bankruptcy court protection on Oct. 15, but still needs more cash to fund operations.
A portion of the current weekly receipts is likely attributable to going-out-of-business sales at about 180 doors. The retailer, which previously said it has a monthly cash burn rate of $125 million, needs additional cash in the form of a junior debtor-in-possession financing facility to help fund operations.
Sears is seeking bankruptcy court approval of a $350 million junior DIP facility with Great American Capital Partners, which is owned by investment banking firm B. Riley Financial Inc. The loan has a 3 percent closing fee and a monthly interest rate based on Libor plus an additional 11.5 percent.
Robert A. Riecker, Sears’ chief financial officer, said in a court document, “Sears needs breathing room to determine the best and most value-maximizing path forward.” He added that if the junior facility is not approved, Sears “will be forced to immediately liquidate at fire sale prices and tens of thousands of jobs will be lost.”
In addition to disclosing the $210 million in weekly receipts, he also said the rate of inventory turnover — not unexpectedly — varies by category, with appliances turning over more quickly than jewelry. The cfo said “on average, the debtors turn over their inventory every 26 weeks.”
The cfo also said, “The debtors are in need of an immediate infusion of liquidity. The $350 million in incremental liquidity to be provided by the [junior DIP facility] will allow the debtors to continue operating in the ordinary course with a larger number of stores while they try to secure a buyer for a substantial part of their business as a going concern.”
Hedge fund ESL Investments, which is run by Sears chairman Edward S. Lampert, is expected to make a credit bid for the company.
Riecker stated that based on his experience as cfo, the $250 million interim draw is the “minimum amount necessary to get the debtors through the proposed final hearing date of Dec. 20. When the company first filed its petition, as part of first-day orders, it was allowed to access a portion of the $300 million in senior DIP financing from its existing asset-based lenders.
And even if Sears does not find a buyer for the company by Dec. 15, Riecker said it would still need the additional financing in order for the retailer to pivot to a liquidation of the business to fund a going-out-of-business sale.