NEW YORK -- Time is running out for Sears, the retailer's largest investor and chief executive warned Monday.
With the company facing a large loan payment due next month, Edward Lampert, who serves as both Sears' CEO and its most influential shareholder and lender, said it needed to drastically restructure its debts to avoid "alternatives."
Those alternatives include bankruptcy.
Lampert's hedge fund, ESL Investments has proposed a series of deals that would reduce the retailer's $5.6 billion debt load. The hedge fund wants Hoffman Estates, Ill.-based Sears Holdings Corp. to restructure more than $1 billion in debt and sell about $1.5 billion in real estate and about $1.75 billion other assets, including the company's popular Kenmore appliance brand, according to a proposal made public in a regulatory filing Monday.
They include selling off many of its remaining stores and asking lenders to exchange their loans for equity stakes in the beleaguered company.
The proposal amounts to a wholesale financial restructuring of the company outside of a Chapter 11 bankruptcy filing.
The deal would free up cash for the company to reinvest in its struggling retail operations.
While Sears has been troubled for years, the proposal signals a heightened urgency from Lampert. His firm's proposal warns that Sears now faces "significant near-term liquidity constraints," with $134 million in debt coming due in a few weeks.
It was not clear whether the company's lenders would accept an offer to take an equity stake in the company because it is premised on a belief that Sears has a future in retail. Analysts say that is far from certain, as the company continues to lose money and customers to more nimble and digitally adept competitors.
The latest rescue attempt is also complicated because ESL is controlled by Lampert, who has an unusual role at Sears. He is chief executive and chairman of the retailer. And in addition to being the largest shareholder, his hedge fund also holds roughly 40 percent of Sears's debt, giving him claim on a great deal of the company's assets, particularly its real estate.
A bankruptcy filing would probably reduce what Lampert could recover, as fees to lawyers and advisers eat into what is left over to pay him and other creditors. Toys 'R' Us, which filed one of the largest retail bankruptcies in history in September 2017, paid hundreds of millions of dollars in legal fees while being forced to liquidate all its U.S. stores.
"Sears must act immediately to have sufficient runway to continue its transformation," ESL said in its proposal Monday.
This is not the first time Lampert has sought to do a deal with a company where he holds significant sway.
Last month, ESL offered to buy Sears' Kenmore brand for $400 million. A special committee of the retailer's board is still reviewing that offer.
His biggest deal came three years ago, when he and other investors formed a real estate company called Seritage and paid $2.7 billion for about 235 Sears stores, including many in choice locations. Many of those are being turned into upscale offices, condos and restaurants, which has been a boon for Lampert and other Seritage investors.
Sears also sold pieces of its business, including the Craftsman tools brand.
Real estate is a key component of Lampert's latest idea. He proposes that Sears' lenders -- whose loans are secured by the company's stores -- stop collecting interest for a year while the company tries to sell those stores.
After a year, if Sears fails to sell enough stores to pay off $1.4 billion in debt, then it will sell the stores to the lenders for a price equal to the value of their debt.
Lampert has the most at stake. His hedge fund owns roughly $1.1 billion of Sears debt secured by stores, according to the securities filing.
"We are ready and willing to move as quickly as possible to help the company transform into a business that is better positioned to thrive in the 21st century," ESL said in its proposal.
Sears has lost more than $11 billion since 2011 and has struggled to win back shoppers.
Sears, Roebuck & Co. was founded in the 1880s by Richard Warren Sears and Alvah Curtis Roebuck as a mail-order company selling watches. Sears was king of the U.S. shopping landscape for decades. Its catalog featured items from bicycles to sewing machines to houses. The company began opening stores in 1925 and expanded in malls from the 1950s to the '70s.
Lampert acknowledged the company's turnaround "has taken far longer than we expected" in a blog post on the company website after Sears reported its second quarter earnings earlier this month.
He wrote that he still thinks Sears can get back to profitability as a smaller company, but "this can only happen with the cooperation of our various stakeholders and with the monetization of further assets that can be reinvigorated independently and without the financial constraints of Sears Holdings."
Information for this article was contributed by Michael Corkery of The New York Times and by Lauren Zumbach of the Chicago Tribune.
Business on 09/25/2018