Sears

Sears Holdings Corp. on Monday received interim approval of customary first-day motions, but its ability to show a reason for staying solvent will depend largely on how well it does during the holiday selling season.

Fortunately for Sears, the interim order granted Monday by U.S. Bankruptcy Court Judge Robert D. Drain, sitting in White Plains, N.Y., includes the ability of the retailer to access $300 million in debtor-in-possession financing. The DIP facility is the senior priming financing provided by the company’s senior secured asset-based revolving lenders — Bank of America, Wells Fargo and Citibank. The company is still in discussions with ESL Investments for a $300 million junior DIP facility.

ESL is the hedge fund of Edward S. Lampert, who is its chairman and chief executive officer. He is also a large investor of Sears and, through ESL, has provided short-term loans to keep the company afloat. He is also Sears’ chairman, and on Monday stepped down from the role of ceo following the company’s Chapter 11 petition.

The approval of DIP financing is crucial for the company as one of the criticisms has been a lack of inventory in the stores. Furthermore, many suppliers had stopped shipping in recent weeks over concerns of a bankruptcy filing and the fear of not getting paid on the pre-petition claims. Having new financing for post-petition purchases will allow the company to restock the shelves at its Sears and Kmart stores.

It used to be that companies had the luxury of time to work with its different constituent groups to hammer out a reorganization plan that’s agreeable to all parties. That changed when the bankruptcy law changed in 2005. In court documents filed by Sears on Monday, there’s about 220 so-called “bubble stores” that the retailer needs to make a decision on whether to keep or walk away. Often times a decision on a borderline store location can center on what terms can be renegotiated with the landlord. Making a decision in just six or seven months to meet the bankruptcy time requirement has tripped up many of the recent big-box bankruptcies, including Toys “R” Us.

An added problem will be obtaining lender support down the road. In the days leading up to the bankruptcy filing, the lenders were said to have been pushing for a liquidation of the company. Sears wants to come out of bankruptcy as a much smaller operation, but it’ll have to show that the Sears and Kmart nameplates have a reason to exist. That’s because a really good, healthy holiday sales period would give lenders a reason to believe that a restructured company has a viable business model. One credit analyst said the company traditionally has shown good sales during the five- to six-week holiday selling period. Only this year, Sears will have to show more than just good sales as it fights to survive.

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