Sears shares dive 27% after report says retailer is preparing for bankruptcy

Irving Hamilton
October 10, 2018

Mr. Carr previously served on the board of LightSquared, a telecom company that went through bankruptcy.

"I don't think it is an immediate drive to bankruptcy, but clearly the options are limited", said David Tawil, president and co-founder of Maglan Capital, which follows distressed companies. Before Mr. Carr's appointment, Sears had six members and four were independent directors.

The court filing could come as soon as this week, as the company has $134 million in debt due Monday, The Journal said.

Sears shares were down 31 per cent at 40.5 cents in afternoon trading in NY, giving the company a market capitalization of $40 million. But it wasn’t always this way.

In August, the board said it was weighing an offer from Lampert that Sears should sell its Kenmore brand and said ESL might offer to buy it if it was willing to sell. The company didn't immediately respond to a request for comment from Barron's. Shares of Sears Holdings Corp. plunged as much as 31 percent in pre-market trading. Sears's poor performance has always been an issue for owners, but landlords are split between those that are likely cheering the possibility of reclaiming its locations for more profitable tenants and those that see its potential bankruptcy as a negative tipping point.

Negotiations between Sears Chief Executive Eddie Lampert and Sears' special board committee are at a standstill over the committee's refusal to approve Lampert's rescue plan, the sources said.

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The Wall Street Journal quoted sources saying Lampert wants to restructure and is anxious that a bankruptcy filing will lead to a liquidation, which has happened with so many retailers, the most recent being Toys R Us.

In another attempt to avoid bankruptcy, Sears a year ago sold its Craftsman tool brand to power tool maker Stanley Black & Decker for US$900 million. He personally took over as CEO in 2013, but the 125-year-old chain's woes have worsened in recent years.

Sears and Kmart have lost more than $11 billion since 2011, and their annual sales have dropped almost 60 percent in that period to $16.7 billion, according to the report. Analysts say it needs to raise about $1.5 billion a year to stay afloat. Seritage Growth Properties, which has master leases on 230 Sears stores, slid 4 per cent, CBL & Associates Properties lost 1.1 per cent and Pennsylvania REIT was down 0.5 per cent.

The company's 8% notes due in December 2019, meanwhile, recently traded at around 25 cents, according to MarketAxess, a level at which investors could sell the notes to Sears under the restructuring proposal.

-Sam Goldfarb contributed to this article.

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