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Sears: Will It Shrink or Close?



How

Sears Holdings
Corp.


SHLD 18.97%

plans to file for Sunday's Chapter 11 protection, the big question is whether a smaller Sears will come out of bankruptcy or whether the filing will result in a liquidation and a definitive end (19659004 ) Sears has reached a deal with lenders in the 11th hour over the last few days that will allow the troubled retailer to keep hundreds of its stores open during the holidays.

The deal followed days of marathon negotiations at the New York office of the Sears & # 39; law firm, the groundbreaking American retailer and its bank lenders, Bank of America Corp., Wells Fargo & Co. and

Citigroup
Inc.

Banks will provide $ 500 million so-called Debtor-in-Possession loan which, in the view of those familiar with the situation, will serve to keep some of its businesses open and light the lighting in the foreseeable future] Edward Lampert, CEO of Sears, who has controlled the company through his hedge fund ESL Investments, believes the company can reorganize around 300 of the most profitable businesses, according to a person familiar with the situation.

As part of the deal, which is slated to wrap over the weekend, Sears closes at least 1

50 stores immediately after seeking bankruptcy protection, another person said. In the meantime, another 250 stores will be in the rating.

Currently, the company operates approximately 700 Sears and Kmart stores, according to one of its employees.

The plan that Sears and his lenders reached last week is not unknown. Dozens of retailers have been looking for Chapter 11 protection in recent years for shifting consumption to online shopping, expensive leases and high debt levels.

Retailers like Claire's Stores Inc.,

Bon-Ton stores
Inc.,

Payless ShoeSource Inc. and Gymboree Corp. All have been looking for the protection of Chapter 11 with early plans to close deals. For some, including Gymboree, Payless and rue21 Inc., a so-called "prepackaged reorganization plan" has allowed companies to emerge from bankruptcy protection, which is still operating on a smaller footprint.

Others were not so happy. Toys "R" Us Inc. and Bon-Ton Stores each sought to protect Chapter 11 with the hope of survival. Bon-Ton, who ran more than 250 stores under banners like Carson, Bergner, and Elder-Beerman, was looking for an owner or investor who would keep the chain alive, but running short and sold to a small group of bondholders and liquidators that closed the entire chain.

  Sears: Will it shrink or close?

Toys "R" Us sought protection under Chapter 11 last September, and although it did not have a reorganization plan or prospect of selling the chain, its management still hoped to survive the submission. After a catastrophic holiday season, however, it was decided to liquidate the more than 800 major toy shops in the US and to sell or liquidate their international business.

Sears & # 39; s lawyers and advisers are ready to initiate a so-called voluntary petition under Chapter 11 and other court records on Sunday night at the US Bankruptcy Court in New York to formally begin the restructuring process under judicial oversight. A nightly submission would likely present the company's lawyers to the bankruptcy judge on Monday.

When a company seeks bankruptcy protection, it must obtain the approval of a judge to stop any controls or make the most decisions regarding its path, including paying its employees, utility bills, and other standard work instructions. In addition, the company is likely to immediately seek approval to use its bankruptcy loan, which is used to make these payments and to keep some businesses up and running.

The deal with Sears came after more than three days of negotiations in the Manhattan offices of the law firm Sears, Weil, Gotshal & Manges LLP. Dozens of lawyers, advisors and bankers were present during the negotiations, which began on Wednesday evening and lasted until the weekend, the people in charge of the matter said.

The Wall Street Journal first reported Tuesday that 125-year-old Die alte Kette commissioned M-III Partners LLC, a boutique consulting firm, to prepare for bankruptcy filing.

At first, the banks were reluctant to give Sears a lifeline. Instead, banks were only willing to provide a loan to the debtor, giving Sears time to sell inventory and close down all of his business, people who were familiar with it said.

The banks are the principal creditors of a $ 1.5 billion asset-backed line of credit secured by store inventories and loan and pharmacy receivables. Much of this line of credit was used, with the retailer desperately demanding cash as the holidays drew near and a repayment deadline for the Monday loan arrived.

While Sears' lawyers and consultants reached an agreement with the banks last week According to people familiar with the matter, earlier this year the trader rejected offers of life from other investors.

Investors who had term loans covered with the same collateral as the banks have already developed approaches to discuss a possible debt in the past year, restructuring or refinancing, which would buy Sears more time, said the people familiar with the matter. The company said time and again that there was "nothing to discuss" among its legal advisors, according to a person involved in the talks.

Lenders reportedly phased out this year and received $ 95 million in August alone with the Securities and Exchange Commission. The repayment unsettled lenders in the face of impending debt, tight liquidity and negative cash flow.

Because Gotshal, one of the country's leading bankruptcy law firms, advised Sears & # 39; special committee and worked directly with him, the company approached in recent weeks as a bankruptcy petition, according to the persons familiar with the matter. The company has been working for months with Lazard Freres and Wachtell Lipton Rosen & Katz, his longtime corporate lawyer, according to people who are familiar with it.

Sears' assets, including the Kenmore Appliance brand and the Sears Auto Centers, could also be "part of the bankrupt sales," one of the people said.

A potential bidder could be Mr. Lampert, a well-known person said. The CEO, who has controlled Sears for more than a decade, has repeatedly saved the retailer with short-term loans, but this week he shied away from offering Sears another lifeline to repay $ 134 million. Lampert, who was also the largest shareholder and largest creditor, offered Kenmore in August to buy for $ 400 million, but the deal never received the blessing of a special committee of independent directors of Sears.


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