Sears Reshuffles Some Debt, Pension Obligations

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Struggling retailer Sears Holdings Corp. (NYSE: SHLD) said Tuesday morning that some its subsidiaries had reached an agreement with their lenders to extend a portion of a $500 million secured loan facility and annuitize $515 million of its pension liabilities. The company’s stock traded more than 5.5% higher in early trading.

A $100 million payment on the $500 million secured loan facility was originally scheduled to mature in July 2017, and that schedule has now been extended to January 2018, with the possibility of a further extension to July of next year. The lenders are JPP LLC, JPP II LLC and Cascade Investment LLC. The first two are controlled by ESL Investments, which is solely owned by Edward S. Lampert, board chair and chief executive of Sears. Cascade Investments is controlled by Bill Gates, co-founder of Microsoft.

The pension liability agreement was negotiated with Metropolitan Life Insurance. According to the Sears press release, Metropolitan “will pay future pension benefit payments to approximately 51,000 Sears retirees.”

Sears said that it is targeting a reduction of $1.5 billion in outstanding debt and pension obligations for this year by “improving profitability, asset sales, and working capital management.”

The pension payments agreement is not expected to have a material impact on the funded status of the company’s total pension obligations, but it is expected to reduce Sears’s combined pension plan, future cost volatility and administrative expenses.

At the end of January, Sears reported total borrowings of $4.16 billion. In its annual report for last year, Sears said it paid $314 million for its domestic pension plans and estimated that it would contribute $312 million in 2017 and $297 million in 2018. These payments are not affected by today’s announcements.

Shortly before noon Tuesday, Sears stock traded up about 4.2% at $8.18 in a 52-week range of $5.50 to $18.18. The consensus 12-month price target on the stock is $4.00.