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Sears Reduces Short-Term Debt Burden With Loan Extension

In the wake of financial struggles that saw the brand report more than $2.2 billion in losses in 2016, Sears Holdings is doing everything it can to stave off a possible bankruptcy. The embattled retailer entered agreements to extend a portion of its $500 million 2016 secured loan facility.

As part of the agreement, Sears will repay $100 million of the loan on its original maturity date of July 2017 while extending the maturity of the loan’s remainder until January 2018. The agreement also provides an option to further extend the loan maturity for an additional six months to July 2018.

Additionally, Sears entered into an agreement with MetLife to annuitize $515 million of pension liability. This means the insurance company will pay future pension benefit payments to approximately 51,000 retirees.

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Sears hopes the agreements will help reduce its outstanding debt and pension obligations of $1.5 billion for fiscal 2017 by improving profitability, asset sales and working capital management.

Sears Holdings also quietly revealed that it is closing 30 more locations — 12 Sears and 18 Kmart stores — on top of the 150 already announced earlier in the year, with most scheduled to shut their doors in July.

With 20 straight quarterly sales declines and an inability to turn a profit since 2010, Sears Holdings has reluctantly admitted in an SEC filing that it has “substantial doubt” that the company will be able to continue as a functioning business without the threat of bankruptcy. The retailer has taken drastic measures to climb out of its hole, such as selling off its iconic Craftsman brand to Black and Decker for $900 million and borrowing money from CEO Eddie Lampert’s hedge fund on various occasions. But despite these actions, the company still appears to be in an irreversible downward spiral.

If Sears wants to fight off the bankruptcy bug, the company may have to go beyond its cost-cutting priorities to focus on improving traffic within its stores and e-Commerce site, and generate more publicity for its proprietary brands.

 

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