What happened
Sears Holdings Corp. (SHLDQ) stock took another dive today after the retailer's long-awaited bankruptcy was made official after Sears filed for Chapter 11 in a New York court overnight. Facing a $134 million debt payment today and a liquidity crunch, bankruptcy was the company's only choice. The stock had been crashing since The Wall Street Journal reported that the company had retained the advisory firm M-III Partners to help with a bankruptcy filing.
As of 1:51 p.m. today, the stock was down 22.6% to $0.31 a share, valuing the company at just $34 million.
Image source: Sears.
So what
As part of the bankruptcy negotiations, Sears received $300 million in debtor-in-possession (DIP) financing from senior lenders, including Bank of America, Wells Fargo, and Citigroup, and is also negotiating another $300 million in DIP financing from ESL Investments, Chairman Eddie Lampert's hedge fund. As part of the agreement, Lampert is stepping down as CEO, and the company has created an office of the CEO in his place. The company also named Mohsin Meghji of M-III Partners as chief restructuring officer and is forming a restructuring committee.
In addition, Sears is closing 142 unprofitable stores by the end of the year on top of 46 stores it said earlier it would close in November.
Now what
Sears said that normal operations will continue at stores unaffected by the proceedings, as the company's goal is to reorganize around a smaller group of EBITDA-positive stores. Sears is also currently discussing a "stalking-horse" bid with ESL Investments to sell a large portion of its store base to the hedge fund, and the retailer plans to sell other assets, which might include real estate and brands like Kenmore appliances and DieHard batteries.
Lampert attempted to put a positive spin on the company's prospects, saying, "The Chapter 11 process will give Holdings the flexibility to strengthen its balance sheet, enabling the Company to accelerate its strategic transformation, continue right sizing its operating model, and return to profitability."
However, the restructuring should only delay Sears' long slide into irrelevance. It's lost money every year since 2010; comparable sales have plunged; and it's failed to mount a turnaround in one of the strongest consumer economies in modern U.S. history. Given that, the company's ultimate demise still looks almost certain.
