Layoffs loom large as banks weigh funding for Sears bid

Bloomberg

Bankers meeting to discuss financing for Sears Holdings Corp.’s impending bankruptcy erupted in disbelief when a headline crossed their smartphone screens. Its subject: them.
A breaking news report said the bankers, gathered on October 11 at the Manhattan offices of law firm Weil Gotshal & Manges, were pushing to liquidate the American retail icon instead of saving it with a new loan. The implications were clear, according to people familiar with the meeting: Keep Sears alive, or you’ll be publicly blamed for the 50,000 job losses that would come with
its demise.
As far as the bankers knew, the report wasn’t true, said the people, who asked not to be named discussing private negotiations. But even today, as they face a deadline in two weeks to extend more loans, the bankers can’t escape factoring in the social cost of their decision.
In private meetings, representatives for Sears and related businesses have repeated the message, the people said. It’s also come up in Sears public comments and former Chief Executive Officer Eddie Lampert’s bid to buy the company.
Robert Riecker, the retail chain’s chief financial officer, made the same point on the day of the company’s October bankruptcy filing.

Lampert’s Plan
“Will Sears be relegated to the dustbin of history, and will 68,000 Americans lose their jobs?” Riecker asked in a court affidavit. The answer “lies in the level of support and cooperation that the debtors receive” from creditors and business partners. Many Sears workers have already been let go.
The messaging comes as Lampert’s hedge fund, ESL Investments Inc, seeks about $1 billion in funding for its proposed purchase of what’s left of Sears, according to the preliminary details outlined in court documents.
The bankers’ decision whether to chip in will come in a national political climate prickly with populist rhetoric.
They know that creditors who opted to liquidate Toys ‘R’ Us became the target of protests by fired workers, faced increased investor scrutiny and weathered criticism from presumed presidential hopefuls Elizabeth Warren and Cory Booker.
They also know that President Donald Trump blasted General Motors for announcing worker cuts.
The last thing the Sears bankers want is a blow to their reputations.
“No one likes bad press, and ‘headline risk’ is absolutely taken into consideration in situations like these,” said Steve Wilamowsky, a bankruptcy and restructuring partner at Chapman and Cutler who was not at the Sears lender meeting.
“Who wants to provide material for an ambitious politician or regulator to caricature you as a cartoon villain, handlebar mustache and all?”
In October, Sears’s banks, led by Wells Fargo & Co and Bank of America Corp, agreed to extend the retailer $300 million to fund itself during bankruptcy. Bank representatives declined to comment.
“We are working around the clock to try to keep Sears in business with a going-concern proposal that would save tens of thousands of jobs and provide severance protections for eligible workers,” ESL said.
“ESL is hopeful that the lessons learned in the Toys ‘R’ Us bankruptcy will aid Sears’s constituents in achieving a successful and expeditious resolution to the Chapter 11 process.”
Bankruptcies are rarely smooth, with sharp elbows and aggressive jockeying commonplace even when politics has a muted role.
The deadline for ESL to firm up its purchase bid is December 28. The auction would take place in the middle of January.