Sears Holdings Corp. is considering whether to auction off a chunk of debt that could give the bankrupt estate an infusion of cash while potentially allowing a bigger payout to hedge funds that bought insurance against its default, Bloomberg reported. Sears may sell as much as $900 million of notes that are essentially intercompany loans from one subsidiary to another, according to people with knowledge of the matter, who asked not to be identified because the discussions are private. Normally, the retailer might find few takers for such unsecured debt. But to hedge funds and other investors that bought roughly $400 million of side wagers known as credit-default swaps, the notes could significantly boost the amount they are owed on those trades. Sears has been trying to line up fresh cash as it seeks to keep its doors open and reorganize in bankruptcy. When it filed for chapter 11 protection last month, the retailer said only lined up part of the funding it needed to stay in business.
