%1

Seritage Growth Properties, the property company Edward Lampert carved out of Sears Holdings Corp. three years ago, tried to reassure investors on Monday that it still has a bright future even though Sears, its biggest tenant, has filed for bankruptcy, WSJ Pro Bankruptcy reported. Seritage sought to persuade investors that it has a sufficient cash cushion to weather any rent shortfall from Sears. On Monday, the real-estate investment trust (REIT) told shareholders that $1 billion of cash on hand and the loan it took of up to $2 billion from Berkshire Hathaway Inc. in August should “cover any cash flow shortfall we may incur in the near term were Sears Holdings to stop paying rent.” In 2015, as a way to raise $2.7 billion in cash, Sears spun off 234 stores and its 50 percent interest in three joint ventures for 28 other stores into a newly listed company: Seritage. The plan was to gradually re-rent Sears stores to new, higher-paying tenants. Sears said yesterday that it plans to close 142 money-losing stores before year’s end, and question marks hang over the fate of additional unprofitable stores. Of 687 Sears stores, 400 are profitable, the company said in court filings. Read more.

In related news, the Pension Benefit Guaranty Corporation (PBGC) issued a statement yesterday saying that it has been working with Sears for several years to improve the funding of the company’s two defined benefit pension plans. The PBGC expects that its guarantees would cover the vast majority of benefits earned under those Sears plans. If circumstances require, the PBGC indicated it is prepared to step in and provide PBGC-guaranteed benefits. The plans, which cover about 90,000 workers and retirees, are underfunded by about $1.5 billion. Read the statement. 

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. 

Whirlpool Corp., Sears Holdings Corp.’s biggest unsecured trade creditor, said the retailer’s chapter 11 filing would have a “very limited short-term impact” on the appliance maker’s finances because Sears accounted for less than 2 percent of sales, according to a WSJ Pro Bankruptcy commentary. Sears filed for bankruptcy yesterday, listing Benton Harbor, Mich.-based Whirlpool as its biggest unsecured trade creditor with a claim of $23.4 million. Trade creditors are those supplying products or services. In a Securities and Exchange Commission filing Monday, Whirlpool said that its exposure to Sears was about $30 million, or roughly 1 percent of its accounts receivable — money owed to a business by customers who have bought products on credit. Whirlpool also said that Sears accounted for less than 2 percent of its sales.

National Stores on Friday began store closing sales at 184 of its remaining locations, according to a press release. The store closing sales are being conducted by a joint venture consisting of Hilco Merchant Resources, Gordon Brothers and SB360 Capital Partners. The specific stores that will be closing are currently branded as Fallas and Factory 2-U stores across 12 states and Puerto Rico. The store closing process is the result of the chapter 11 filing by National Stores, Inc. and certain of its affiliates. As part of the restructuring, management at the retail chain has conducted a store rationalization process resulting in the shutdown of these specific stores. 

Sears Holdings Corp. filed for chapter 11 protection today with a plan to close 142 more stores, Reuters reported. The chapter 11 filing to reorganize debts of 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 Chief Executive Officer Eddie Lampert in an attempt to turn around the company he bought in 2004. Lampert had pledged to restore Sears to its glory days, when it owned the tallest building in the world and companies that included a radio station and Allstate insurance. But the company has not turned a profit since 2011, and critics say Lampert let the stores deteriorate over the years, even as he bought the company's stock and lent it money. It has sold off the legendary Craftsman brand and is considering an offer from Lampert for the Kenmore appliance name. The company listed $6.9 billion in assets and $11.3 billion in liabilities in documents filed in the U.S. Bankruptcy Court in the Southern District of New York. Read more. 

For much of the 20th century, Sears Holdings Corp. defined American retailing with catalogs and department stores that brought toys, tools and appliances to millions of homes. By the time Sears filed for bankruptcy, the once-great company was shriveled and sickly, according to a Wall Street Journal commentary. Decades earlier, it had been dethroned by Walmart Inc. as the biggest U.S. retailer. Then it was crippled by a chief executive with unorthodox strategies, and Amazon.com Inc., an endless online catalog that sucked profits out of the business, according to the commentary. For much of its 125 years, Sears was a pioneer, launching brands like Kenmore appliances and Craftsman tools. It shipped a catalog to nearly every U.S. home and created its own credit card to spur sales. After World War II, it followed people to the suburbs, helping build the malls that moved retailing away from Main Street. It was the first major chain to build parking lots and open its doors on Sundays. Many Americans still live in Sears kit houses, so named because they were purchased via the catalog and delivered in pieces by railroad. Sears’s reach went beyond selling homes and the things Americans put inside them. It created Allstate Insurance Co. and the Discover credit card. In Chicago in 1973, it opened the 110-story Sears Tower, then the world's tallest building; it was renamed the Willis Tower in 2009. Read the full commentary. (Subscription required.) 

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. 

Creditors for the nation’s second-largest Applebee’s franchisee were cleared yesterday to begin voting on the bankrupt company’s reorganization plan, but a judge said language needed to be more prominent about a dispute with the chain’s parent and potential funding problems, WSJ Pro Bankruptcy reported. RMH Franchise Holdings Inc., which has closed about 20 stores since it filed for bankruptcy in May and has said it might shutter more, is also negotiating with additional landlords for lease concessions. RMH appeared in U.S. Bankruptcy Court in Wilmington, Del., yesterday seeking permission to allow its creditors to begin voting on its proposed bankruptcy plan. Bankruptcy Judge Brendan Linehan Shannon said that he would approve RMH’s disclosure statement, a document that describes how the financial restructuring will work so creditors can decide how to vote on it but told the restaurant operator that it needed to make certain modifications, including more prominent mention of the ongoing dispute between it and Applebee’s Restaurants LLC.

Sears Holdings Corp. has started to miss payments to vendors, adding to concerns about its future after sources said on Wednesday that the U.S. department store operator was preparing to file for bankruptcy in the coming days, Reuters reported. Three vendors told Reuters that Sears had missed scheduled payments to them in the last couple of weeks. It was not immediately clear how widespread the issue was and how it would affect Sears’ supply chain ahead of the holiday shopping season. Vendors could stop shipments if they are worried Sears cannot pay, potentially sending the retailer into freefall. Were Sears to file for bankruptcy, stocking shelves adequately could prove key to escaping liquidation. Both vendors and creditors will be looking at the retailer’s sales performance during the holiday season in deciding whether to continue to back it, sources have said. Read more. 

One of the worst outcomes for a business owner is having a major customer file for bankruptcy and leave behind a large unpaid account receivable. ABI's Business Creditor’s Guide to Distressed Vendors, Debt Collection and Bankruptcy provides an insider’s look into the options available to help screen a business’s customers, plan for worst-case scenarios, and, if the situation does arrive, efficiently handle the fallout. 

Sears Holdings Corp. has hired M-III Partners LLC to prepare a bankruptcy filing that could come as soon as this week as the cash-strapped company that once dominated American retailing faces a debt payment deadline, the Wall Street Journal reported. Employees at M-III Partners, a boutique advisory firm, have spent the past few weeks working on the potential filing. Sears continues to discuss other options and could still avert an in-court restructuring. Sears, which has been losing money for years, has $134 million in debt due on Monday. Edward Lampert, the hedge-fund manager who is Sears’s chairman, chief executive, largest shareholder and biggest creditor, could rescue the company, as he has done in the past by making the payment. But Mr. Lampert is pushing for a broader restructuring that would include shaving more than $1 billion from Sears’s $5.5 billion debt load, selling another $1.5 billion of real estate and divesting $1.75 billion of assets, including the Kenmore appliance brand, which he has offered $400 million to buy himself. Read more. (Subscription required.) 

In related news, Sears said that it added restructuring expert Alan Carr to its board of directors as the company faces critical debt repayments and looks to overhaul its borrowings, Bloomberg reported. Carr is chief executive officer of restructuring advisory firm Drivetrain LLC and has over 20 years of experience with financially distressed companies as both an investor and an adviser, according to his firm’s website. Before his current role, he was a distressed debt and private equity investor at Strategic Value Partners LLC. He joins the board as the retailer faces $134 million of borrowings maturing on Oct. 15. ESL Investments, the hedge fund managed by Sears Chief Executive Officer Eddie Lampert, said in a filing last month that the debt coming due was among the obligations creating "significant near-term liquidity constraints" for the company. Sears mentioned those constraints as part of a proposal it offered to sell real estate to help pay down borrowings, which would cut debt by nearly 80 percent. Read more. 

Mattress Firm Inc., which filed for bankruptcy last week, won court approval Tuesday to begin closing hundreds of stores and said it plans to renegotiate leases and seek rent concessions at “many more,” WSJ Pro Bankruptcy reported. Bankruptcy Judge Christopher Sontchi also gave the nation’s largest specialty mattress seller clearance to start using up to $250 million in financing to help it get through its chapter 11 reorganization. The Houston-based retailer had acquired dozens of rivals over the past decade, leading to a glut of stores, a lawyer for the company said yesterday. The bankruptcy filing follows a deal that Mattress Firm’s troubled parent company, Steinhoff International Holdings NV, struck with its bondholders to hand them a 49 percent stake in the retailer. Steinhoff took Mattress Firm private two years ago for $3.8 billion.

Steinhoff’s Mattress Firm Inc., the largest U.S. mattress retailer, has filed for voluntary bankruptcy protection, giving it breathing room to restructure and shore up its finances as its South African parent company fights for survival, Reuters reported. Steinhoff has been working on a deal to restructure the debt of some subsidiaries with its creditors after revealing multi-billion euro holes in its balance sheet. Mattress Firm is looking to close up to 700 of its 3,000 brick-and-mortar locations. An initial 200 stores will be closed in the next few days, Steinhoff said. The retailer, which said it will continue to serve customers as usual at stores and online during the process, has also received $775 million to fund ongoing operations and repay debt and costs associated with the restructuring.