What happened

Shares of Sears Holdings (NASDAQ:SHLDQ) were falling again today, after the ailing retailer offered to exchange upcoming debt in a move that was interpreted as evidence of the company's cash crunch. Though the press release came out yesterday, shares dove this afternoon as investors digested the news. The stock closed down 8.2%.

So what

Sears said it would commence private exchange offers for an 8% note due in 2019 and a 6.5% note due this year. For the 8% note, Sears is offering a similar 8% note due next year, but one that would be convertible into stock if the share price reaches $8.33 or higher. In other words, it would allow Sears to repay the principal in stock rather than cash, saving it money that it needs now to fund its operations. For the 6.5% note due this year, the company is offering a similar note due in 2019, buying it an extra year to repay it, and offering it as convertible at $5 a share. 

The exterior of a Sears department store

Image source: Sears Holdings.

Investors seemed to view the move as a desperate one and a sign that Sears may not even have enough cash to repay the 6.5% note due this year.

Now what

This is far from the first time Sears has relied on financial acrobatics to stay afloat. In 2015, the retailer sold 235 stores to Seritage Growth Properties (NYSE:SRG) in a leaseback arrangement, and more recently it has relied on loans from CEO Eddie Lampert's own investment fund, ESL Investments. The company has posted a net loss every year since 2010, and comparable sales are falling by double digits. Sears ended the third quarter with just $200 million in cash and nearly $800 million in payables on its balance sheet, and with current liabilities totaling $1 billion more than current assets. 

The company is clearly in the midst of liquidity crisis, and yesterday's announcement is only one more reason to believe that its bankruptcy is impending.

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