Lampert agrees to lend Sears $400M

By Zoe Galland, Bloomberg News

CHICAGO (Sept. 16, 2014) — Sears Holdings Corp. is taking a $400 million short-term loan from the hedge fund owned by its CEO and largest shareholder, Edward Lampert.

Mr. Lampert's ESL Investments provided $200 million as of Sept. 14 and will fund the remainder Sept. 30, Hoffman Estates, Ill.-based Sears said in a regulatory filing. The money will be used for “general corporate purposes.”

Sears has been selling and spinning off assets to raise cash as losses mount. The company posted a second-quarter loss of $573 million last month and said it would seek more long-term capital-structure flexibility from lenders.

“It's an easy deal for him to do” because it is short- term and secured, said Mary Ross Gilbert, an analyst at Imperial Capital L.L.C. “It's no surprise because we already know that the company has significant cash burn.”

The loan helps meet the company's previously announced goal of raising $1 billion in liquidity this year, Howard Riefs, a Sears spokesman, said in an email.

The borrowing “allows us additional financial flexibility, particularly as we enter the holiday season,” Mr. Riefs said. “We want to be proactive in demonstrating to our vendors and other constituents that we will continue to generate liquidity needed to invest in our business and meet all of our financial obligations.”

The ESL loan, which has a base annual interest rate of 5 percent, matures at year-end and can be extended for two additional months, Sears said. It is secured by a first lien on 25 stores.

Sears has cut back on borrowing commercial paper—short- term, unsecured credit used to fund daily operations, most of which was funded by ESL and Mr. Lampert. Sears had $7 million outstanding as of Aug. 2, none of it from Mr. Lampert or his fund, compared with $235 million held by ESL in the year-ago period, according to the company's latest quarterly filing.

The new loan secured by real estate provides Sears “with a more predictable source of funding,” Chris Brathwaite, a company spokesman, said in an email.

Sears stock fell 2.2 percent to $33.52 at the close in New York Sept. 14. The shares have declined 16 percent this year.

This Bloomberg News report appeared on the website of Crain's Chicago Business magazine, a sister publication of Tire Business.