Eddie Lampert suffered a setback in federal court this week when a judge effectively ruled that some of his claims against the bankrupt estate of Sears Holdings Corp. have so little priority that they are likely worth a fraction of what he’s demanding, Bloomberg News reported. The decision probably means Lampert’s ESL Investments Inc. and other second-lien creditors will get far less than the $718 million they’re collectively asking from “Old Sears,” the legal shell that was left over after the chain’s 2018 bankruptcy to pay remaining claims. It’s just one of many issues over which Lampert and the Old Sears estate have locked horns since he bought the business out of bankruptcy. It also comes as the money remaining in the estate to pay claims has dwindled to an estimated $5 million, putting it on the edge of administrative insolvency. While the duel could have an impact on the finances of former lenders to Old Sears, which includes Cyrus Capital Partners LP and Lampert’s ESL, the Sears retail chain is now a separate entity, and its fate is no longer tied to Old Sears. The Sears estate successfully blocked an attempt to classify the debt held by second-lien lenders as administrative claims, which get higher priority in the pecking order of payments, according to a court filing. That means the second liens — the kind of debt held by ESL and Cyrus — will likely get paid out at a discount along with other lower-priority claims. ESL and Cyrus argued in June that the Sears estate wrongly sapped the value of the collateral supporting their debt. An expert hired to support the second-lien lender’s claims said in a court filing that the lenders are entitled to an administrative claim of about $718 million. Judge Robert Drain disagreed. He said that because there was no drop in the value of the second-lien holders’ collateral, those lenders aren’t entitled to any of the estate’s wind-down account, according to his decision filed Monday afternoon.
