If Sears, once the nation’s largest retailer, declares bankruptcy, it could cause one of the biggest pension defaults in U.S. history, but the government would step in to keep checks coming to more than 90,000 retirees, the Chicago Tribune reported. The company’s long-term pension obligations, which have been underfunded by more than $1 billion for years, would be covered by the federal Pension Benefit Guarantee Corp., which has footed the bill for nearly 5,000 failed employer pension plans since its founding in 1974. “PBGC is monitoring developments at Sears and will continue to protect its two pension plans, which cover over 90,000 people,” the agency said yesterday. The struggling Hoffman Estates-based retailer is facing a $134 million debt repayment on Monday, which reportedly could lead Sears to seek bankruptcy protection in the next few days. Under a chapter 7 liquidation, the company’s pension obligations would shift to the government, while under a chapter 11 reorganization, Sears could maintain one or both of its pension plans. Prof. Drew Dawson, a law professor at the University of Miami and former ABI Resident Scholar, called the potential Sears pension default “pretty staggering” in its scope, based on historic comparisons. “The human impact of this is really big on the individual retirees,” Dawson said. “But this would be a big impact on the PBGC itself, financially.” In a blog post last month, CEO Edward Lampert wrote that Sears has contributed more than $4.5 billion to its pension plans since 2005, an obligation that “significantly impacted” the company, which hasn’t turned an annual profit since 2010. Read more.
In related news, the prospect of Sears Holdings Corp.’s imminent bankruptcy threatens to widen the gap between the more successful shopping centers and the struggling ones, the Wall Street Journal reported. Mall owners with trendy retailers, lively restaurants and other forms of popular entertainment have continued to prosper. Many of these landlords would welcome Sears’ departure, mall owners and analysts said. The department store’s exit would allow them to take over a big-box space and lease it to a more profitable tenant. In malls where leases were signed decades ago, Sears rents could be as low as $4 a square foot. New tenants in the same space could bring in as much as six times that amount. But for mall landlords in more economically depressed areas, where there is often still a glut of run-of-the-mill retail and much of the former foot traffic has migrated to online shopping, the loss of Sears as anchor tenant could be troubling. The brand still attracts some consumers, and many owners would be hard-pressed to find another large tenant to take Sears’ place. Read more. (Subscription required.)
Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store.
