CHICAGO — Sears Holdings Corp. has filed for voluntary Chapter 11 bankruptcy protection and disclosed plans to close 142 unprofitable stores by year-end.
Sears also said Edward Lampert has stepped down as CEO but continues as chairman.
Sears and Kmart stores and online platforms will remain open, though the company also said it would close 142 unprofitable stores near year-end, with liquidation sales at those locations "expected to begin shortly."
Sears did not disclose at this time which stores are closing.
Sears only recently expanded its tire installation agreement with Amazon.com Inc. to 295 Sears Auto Centers nationwide.
The company said it has commitments for $300 million of debtor-in-possession financing from its senior secured asset-based revolving lenders and is negotiating a $300 million subordinated DIP financing with ESL Investments, where Lampert is chairman and CEO.
The hedge fund held about $2.5 billion in Sears debt as of September, the result of multiple attempts to keep the chain afloat.
"Over the last several years, we have worked hard to transform our business and unlock the value of our assets," Mr. Lampert said in a statement.
"While we have made progress, the plan has yet to deliver the results we have desired, and addressing the company's immediate liquidity needs has impacted our efforts to become a profitable and more competitive retailer.
"The Chapter 11 process will give (Sears) the flexibility to strengthen its balance sheet, enabling the company to accelerate its strategic transformation, continue rightsizing its operating model, and return to profitability. Our goal is to achieve a comprehensive restructuring as efficiently as possible, working closely with our creditors and other debtholders, and be better positioned to execute on our strategy and key priorities."
Negotiations over the fate of the fallen company continued over the past week, as it faced a critical $134 million of debt that is maturing today.
Since 2012, Sears losses have topped $10 billion. This past week, Sears took a number of steps to prepare for the filing, including hiring a boutique advisory firm, naming a new restructuring expert to its board of directors and negotiating a possible bankruptcy loan. Wells Fargo, Citigroup and Bank of America were cited as potential providers of a loan in bankruptcy, according to people with knowledge of the matter, since they're behind the company's existing asset-backed loan.
Mr. Lampert, who has been Sears' chairman and CEO since 2013, has been using his own money to keep Sears afloat for years to offset losses. He's done so through deals and infusions from ESL Investments, the retailer's biggest equity holder and a major debt holder.
Sears employs about 89,000. A bankruptcy could trigger one of the biggest pension defaults in the U.S. as Sears employees' pension has gone underfunded for years. Last month, Mr. Lampert said that Sears had been "significantly impacted" by paying more than $4.5 billion for its pension plans since 2005.
In bankruptcy protection, Sears would probably jettison its pension obligations, with the government's Pension Benefit Guaranty Corporation taking over the liabilities.
The fate of Kmart, which Mr. Lampert merged with Sears in 2005, and other satellite companies such as the Kenmore appliance brand, is also up in the air.
Before bankruptcy seemed inevitable, Lampert's hedge fund ESL had been pushing a debt-restructuring proposal that would avoid a bankruptcy filing. It involved selling Sears' real estate to help pay down borrowings. Other creditors criticized the plan as a maneuver for ESL to extract value before insolvency hit.
Seritage Growth Properties, part of a real estate investment trust spun off by Sears in 2015 with the leases on 230 properties operated by Sears or its Kmart division, is also 44 percent-owned by Lampert entities. With Sears in bankruptcy, any potential for liquidation could mean an end to the lease agreements with Seritage.
Because Seritage collects rent on the properties, and much of those payments flow to Mr. Lampert through dividends, Sears' bankruptcy could raise arguments that some payments should be clawed back by creditors. Bankruptcy law allows creditors to argue that money moved out of their reach in the period leading up to a bankruptcy was unlawfully transferred — if they can show the company was already essentially insolvent. The fact that Mr. Lampert owns so much of Sears' debt, and also is a beneficiary of rent payments through Seritage, may constitute a conflict in any talks about whether to immediately liquidate.
What about vendors?
Keeping shelves full and sales stable was a factor in avoiding liquidation and helping creditors determine whether they want to keep throwing money into the company. As Sears' liquidity tightened, the company has been struggling to meet its obligations for some vendors.
Still, some suppliers said they negotiated favorable payment terms well ahead of news that it could file for bankruptcy, so they're continuing to ship goods. Many large suppliers are getting paid in advance, while some smaller ones have cut payment terms to a few weeks, instead of months, according to people familiar with the situation, who asked not to be named because the dealings are private.
Vendors are considered unsecured creditors in the case of a bankruptcy and would get only pennies back on the dollar in bankruptcy court.
Sears has been losing market share for years, but its Kmart and Sears chains still generate about $14 billion in annual sales. Liquidation would mean companies like J.C. Penney, Best Buy and Lowe's would reap the rewards.
One of the biggest prizes could be appliances, a category where Sears was still a major player and was on pace to generate $3.5 billion in sales this year, according to UBS Securities. That could boost same-store sales at many chains. Home goods and sporting goods retailers are likely to also benefit.
Bloomberg contributed to this story.