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Sears Holdings’ chapter 11 bankruptcy filing on Monday has some mall landlords excited about the opportunity to finally re-tenant Sears and Kmart stores that were paying below-market rents with healthy tenants, which could drive more revenue and shoppers, National Real Estate Investor reported. The storied retail chain plans to reorganize around a smaller store base. It will continue to operate the financially healthier stores while it reorganizes and negotiates with its creditors. Even if the company downsizes to a smaller store base, some industry experts say it would likely be more profitable to liquidate both chains. If the company does liquidate, it would dump about 100 million sq. ft. of vacant retail space on the market. “I’m sure it’s Lampert’s intention to emerge, but liquidation is a likely scenario,” says Lauren Leach, director of real estate advisory services at Birmingham, Mich.-based consulting and advisory firm Conway MacKenzie. “Sears has been selling its real estate for years now, so there’s no way its remaining collateral is worth enough to satisfy its debts.” The assets have been nearly all stripped, and any emergence from chapter 11 would surely involve many store closings and a breakup of the remaining valuable assets, says David Weiss, a partner at Chicago-based consulting firm McMillan Doolittle. Read more. 

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. 

Hedge fund manager Edward S. Lampert has spent the last 14 years steering Sears as it spun off businesses, took on debt and, this week, filed for bankruptcy protection, the New York Times reported. His hedge fund, ESL Investments, appears to have racked up a much more modest loss than the company’s chapter 11 bankruptcy filing would suggest, according to corporate filings and interviews with analysts and investors. ESL’s nearly 50 percent stake in Sears will probably be wiped out in bankruptcy. But that loss is offset by gains elsewhere. For example, Lampert has collected hundreds of millions of dollars in interest and fees from Sears. He also took stakes in businesses that were spun off from the company, and some of those investments are doing well.

Creditors are sifting through the smoking ruins of Sears Holdings Corp.’s bankruptcy to question whether any of Eddie Lampert’s deals involving the bankrupt retailer were improper, Bloomberg News reported. Lampert, a billionaire who controls nearly half of Sears stock, has had interests on both sides of significant transactions the past few years. He remains the retailer’s chairman after resigning on Monday as chief executive officer, and he’s also chairman of the retailer’s spinoff, Seritage Growth Properties, which collects rent from 230 Sears and Kmart stores. Lampert and his hedge fund, ESL Investments Inc., have loaned Sears $2.66 billion in a dozen different ways. “Things may get contentious early on,” said Jeffrey Pierce, managing partner at Snow Park Capital Partners, a hedge fund that has had a short position on Sears stock. “There are many large payments being made out of Sears to entities Lampert has material economic interests in, such as Seritage.” ESL floated a plan last month to restructure the 125-year-old retailer and keep it out of bankruptcy, where it falls under a judge’s scrutiny. The plan was rejected by other creditors. Sears filed for chapter 11 on Monday with about $11 billion in liabilities and $7 billion in assets. It said it plans to shutter 142 stores. Read more. 

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. 

Junior creditors say shoe, apparel and accessories seller Nine West Holdings Inc.’s bankruptcy exit strategy is unacceptable, and they need to take over legal claims against private-equity owner Sycamore Partners LP, WSJ Pro Bankruptcy reported. Court papers filed on Tuesday say that Nine West is in talks to settle damage claims against Sycamore on the cheap, allowing the private-equity firm to hang on to what creditors call “a massive financial windfall” it collected as part of an alleged asset-stripping scheme. A Sycamore spokesman yesterday declined comment on the allegations, which surfaced on Tuesday in a filing with the U.S. Bankruptcy Court in New York by the official committee representing Nine West’s unsecured creditors. A spokeswoman for Nine West could not immediately respond to the creditors’ request to pursue a lawsuit that the company has been trying to settle. Read more. 

In related news, Nine West Holdings Inc. yesterday filed an amended chapter 11 plan that will reduce its pre-bankruptcy debt obligations by more than $1 billion, Reuters reported. The plan is expected to provide $105 million cash recovery to stakeholders through the settlement of potential claims and causes of action against the company’s indirect equity owners, it said. Nine West, which owns brands such as Anne Klein and Gloria Vanderbilt, said it will also receive a three-year purchase commitment from Belk Inc. for an assortment of merchandise across the company’s businesses. Read more. 

The decision by five investment companies to pull the plug on a Toys “R” Us reorganization earlier this year is coming under fire from Sen. Elizabeth Warren (D-Mass.), the Wall Street Journal reported. In a letter to the companies yesterday, Warren asked why the investment firms had pressed to liquidate the retailer amid viable options to reorganize it and she urged them to contribute to a fund benefiting laid-off employees. The letter went to executives at Solus Alternative Asset Management, Angelo Gordon & Co., Franklin Mutual Advisors, Highland Capital and Oaktree Capital, the five major holders of a crucial stake in Toys “R” Us debt. Warren also sent a letter requesting that Vornado Realty Trust, a former owner of Toys “R” Us, contribute to the former employee fund. Toys “R” Us filed for bankruptcy in September 2017 intending to reorganize. But last March, the five investment funds ended that effort, even though the bankruptcy court heard testimony that there were “real people, credible institutions, engaged in a serious discussion around potentially reorganizing the company.”

Wedding dress retailer David’s Bridal has decided not to make an interest payment that was due Oct. 15 and is negotiating with its lenders, WSJ Pro Bankruptcy reported. “We are engaged in discussions with our lenders in order to reach a mutually agreed upon resolution designed to strengthen our balance sheet so we can increase our financial flexibility and further invest in our business,” a David's Bridal spokesman said. The Conshohocken, Pa.-based retailer, which hired restructuring adviser Evercore earlier this year, said that it doesn’t expect day-to-day operations to be affected. It has ample liquidity to meet key business objectives and the discussions with lenders have been constructive, the spokesman said. The company has nearly $900 million in debt, including $270 million in unsecured notes that mature in October 2020, a $497 million term loan that matures in October 2019 and a $125 million asset-based revolving loan due in December 2019, according to FactSet.

When Sears Holdings Corp. filed for chapter 11 bankruptcy on Monday, it said that it would close another 142 unprofitable Sears and Kmart locations and seek to reorganize around financially healthier stores. It also triggered a “time bomb” that retailers have had a tough time surviving, according to a Reuters commentary. Over the last dozen or so years, bankrupt retailers have had less time to make major strategic decisions for their survival and landlords and lenders have had more leverage in the process. The change stems from a provision in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that forces companies to find an agreement within seven months on its real-estate leases, or allow landlords to walk away from the agreement. Prior to 2005, companies would spend a year or two working out a viable survival plan. The law intensifies the pressure on Sears and Chairman Eddie Lampert to restructure the company and turn it into a relevant, viable business. “They have less money and a shorter period of time to make decisions,” said ABI President Ted Gavin of the Gavin/Solmonese restructuring advisory firm. “There’s more transactional risk.” Read the full commentary*. 

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

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. 

Sears Holdings Corp.’s bankruptcy filing on Monday was anticipated by many, but it included some surprises, chief among them the naming of M-III Partners LP’s Mohsin Meghji as the retailer’s new leader, WSJ Pro Bankruptcy reported. As part of Sears’s chapter 11 filing, its long-time leader, and major creditor, Edward Lampert stepped down from his role as chief executive, although he remains chairman. The company said that it instead created an office of the CEO and appointed Meghji, M-III Partners’ founder and managing partner, as chief restructuring officer. New York-based M-III Partners had been working closely with Sears since 2016, and Meghji was appointed CRO earlier this month, according to court papers. Meghji reports directly to an independent committee of Sears’s board of directors and is “responsible for carrying out [Sears’s] restructuring strategy and objectives.”

A bankruptcy judge yesterday approved $300 million in financing to keep department store chain Sears Holdings Corp. open through the holiday season, giving the century-old retailer that once dominated U.S. shopping malls a chance to remain in business, Reuters reported. Sears filed for chapter 11 protection in White Plains, New York yesterday with a plan to close about 142 of its 700 stores by year-end and sell its best-performing stores in an auction in January to a buyer that will keep them operational. The bankruptcy filing by the parent of Sears, Roebuck and Co. and Kmart Corp. follows a decade of revenue declines, hundreds of store closures, and years of deals by billionaire Eddie Lampert in an attempt to turn around the company he acquired in 2005 for $11 billion.