Lampert keeps his cash on sidelines as Sears touts sale plan

Bloomberg

For once, Eddie Lampert is keeping his wallet in his pocket. Sears Holdings Corp. is closing in on a deal with new lenders to finance it through its bankruptcy, according to a person with knowledge of the situation. Lampert and his hedge fund, ESL Investments Inc, won’t be participating.
Then there’s the retail chain’s plan to auction off the highest-performing stores. That paves the way for Lampert, Sears’s chairman and former chief executive officer, to potentially hold on to the best parts of the retail empire by paying with debt rather than cash.
Sears, once the dominant US retailer, filed for bankruptcy protection October 15 after years of decline. Investors, vendors, customers and some 89,000 employees are watching the bankruptcy closely for clues to the company’s fate. A group of creditors now says Lampert may have bilked the company of $2.6 billion through a complicated series of transactions with ESL and related parties.

BANKRUPTCY FUNDING
Investors wouldn’t be faulted if they expected Lampert, the biggest equity owner and a top debtholder, to propose a reorganisation plan that would keep Sears intact through bankruptcy. But that likely would have obligated him and his hedge fund to chip in fresh cash.
Lampert’s hedge fund, along with partners, was originally expected to provide the so-called junior debtor-in-possession lo-an that will double the retailer’s financing to $600 million. But it’s now funded entirely by other lenders. The deal for increased bankruptcy financing was first reported by Reuters.
Under the debtor-in-possession loan, Sears is required to name a primary bidder by December 15 for its “go-forward stores” — the viable retail
outlets that are expected to be Lampert’s focus.
As one of Sears’s biggest secured creditors, Lampert may be able to make a so-called credit bid, which means he would trade the debt he holds for ownership instead of making an all-cash offer. That route would probably allow him to leave behind obligations like pension and lease liabilities and vendor claims as he hand-picks a selection of profitable stores to keep open.

FIRST SALE
A representative for ESL Investments declined to comment on the fund’s strategy, as did a representative for Sears. In its first asset sale since its bankruptcy filing, Sears tentatively agreed to sell its home-improvement unit to Service. com for $60 million.
In motions, Sears’s lawyers laid out proposed rules for how it plans to sell assets, emphasising the need for urgency. “It cannot be overemphasised that time is of the essence,” Sears’s lawyers said. The case “must progress with all deliberate speed to stem the substantial operating losses that will continue to decrease the value of the debtors’ estates.”
Sears is next expected in court November 15, when it will formally present its plan to keep the lights on through the holiday season. The new cash is crucial to that plan given the rate at which the company is spending, Sears lawyer Ray Schrock of Weil Gotshal said October 15.
“When you look at the cash burn associated with the overhead of the enterprise, it’s really something where things have to move very quickly,” Schrock said. “It really has to happen on an
expedited time frame.”