FITCH AFFIRMS SEARS RATING DESPITE CREDIT CARD SNAFU

NEW YORK — Fitch Investors Service has affirmed its “A” rating on the $13.4 billion senior debt of Sears, Roebuck & Co. and affiliates, following the disclosure last week that Sears has agreed to repay all funds received from bankrupt customers under unfiled reaffirmation agreements.
Sears has admitted that it utilized “flawed legal judgment” in failing to file in bankruptcy court a still-unknown number of agreements under which bankrupts agreed to repay Sears — even though their bankruptcies relieved them of that legal obligation.
Fitch estimated that Sears was paid approximately $400 million under reaffirmation agreements and that only a fraction of those were not filed.
However, Fitch added, “If the magnitude of the future charges, including potential punitive damages, significantly impacts the company’s debt-service capacity, Fitch will then reevaluate its assessment of Sears’ credit strength.”
Sears said Thursday that it was conducting an audit to determine the number of unfiled agreements and that it would repay all money collected from 1992 to April 1, 1997, plus interest.
Sears will also send each of these debtors a $100 Sears gift certificate.
Meanwhile, there are two class-action suits filed in Boston by debtors whose affirmations were not filed, that are seeking damages beyond the restitution already offered by Sears.
Those suits are being consolidated, and there is a move to certify the bankruptcy court in Boston as the forum for the national action.
Frederic D. Grant, the Boston attorney in one of the class-actions, said that the cases have been adjourned until June 5 to allow time for the plaintiffs to investigate the circumstances under which the reaffirmations were obtained.