24/7 Wall St.

The U.S. Pension Benefit Guaranty Corporation (PBGC) has filed an objection in U.S. Bankruptcy Court to the proposed bankruptcy filing of Sears Holdings and more than 40 other debtors. The proposed bankruptcy would allow Sears chair and former CEO Eddie Lampert to purchase some 400 Sears and Kmart stores for about $5.2 billion.

Lampert’s payment does not include $1.7 billion in unfunded pension obligations, none of which would be paid by KCD IP, a non-debtor subsidiary of Sears Holding and “several” of the other debtors. According to the PBGC filing, “it appears that the Debtors are proposing an aggregate cure amount … for $0.”

When Sears filed for bankruptcy protection on January 18, the PBGC said in a press release that it was “taking steps to assume responsibility” for the company’s defined pension benefits plans that cover about 90,000 people. At the time of the press release, PBGC estimated that Sears had underfunded its pension plans by $1.4 billion.

Other Sears creditors also have sought a liquidation of the company’s assets rather than a sale to Lampert. According to a report last week in The Wall Street Journal, the unsecured creditors allege that Lampert and his hedge fund, ESL Investments, “spun out businesses and collected dividends and that he made loans and collected interest and fees on them.” The creditors are seeking court approval to sue Lampert and ESL.

From the January 23 filing by the creditors, seeking standing to claim damages from Sears:

By accepting ESL’s bid to acquire Sears, made with a credit bid of disputed claims, the Debtors have capitulated to Lampert’s and ESL’s efforts to steal the remaining assets of Sears. This is the final step of a multi-year and multi-faceted scheme–one made possible by the Debtors, which are led by Board members that were handpicked by and are beholden to Lampert and ESL.

If the bankruptcy court approves the sale of Sears to Lampert and ESL, PBGC’s stake in the company that controls the DieHard and Kenmore brands will be lost, along with the royalty payments that PBGC currently receives. The PBGC filing adds weight to the earlier filing by the creditors.

Lampert is scheduled to appear in court next Monday to ask the judge to approve his $5.2 billion acquisition of Sears.