Sears Holdings Corporation (NASDAQ:SHLD) recently exited the S&P500 index, as the company’s public float has been less than the 50% threshold mandated by S&P. The stock has been a member of the S&P for over 50 years, and the moment, therefore, is somewhat of a watershed in its fortunes.


Apart from the above event, Sears Holdings Corporation (NASDAQ:SHLD) has also had a rough time in the marketplace. It posted a massive $2.4 billion loss in its fourth quarter, as reported in January. This was the largest loss it faced in nine years.

Reflecting the company’s troubles, its issued debt fell to levels that classified it as “distressed” by the end of 2011. Its $987 million of 6.625 percent second- lien notes, due in October of 2018, saw spreads widen to as much as 1,068 basis points by December 31, 2011, a sure sign that the notes were in distressed territory. On January 4, Moody’s downgraded the company’s debt two steps and maintained a negative outlook, due to “negative trends in sales.” The company’s October 2018 notes quoted at 76 cents on the dollar on Jan 3, 2012, and offered a yield of 11.9 percent.

Yet someone who bought the 2018 notes would have earned a 25% return this year. This is because the retailer embarked on an all-around belt tightening, to ensure that cash levels were improved by selling assets, if so required. Not only that, cash from operations has also shown a steadily rising trend. Strict cost control and check on inventories led Sears Holdings Corporation (NASDAQ:SHLD) to report a substantially reduced loss in the second quarter. According to Bloomberg, the company also expanded margins through better promotions, reduced debt, and improved liquidity levels, so much so, that analysts now dismiss fears of a liquidity crunch at the company.

The measures have reflected on its debt. Spreads on the October 2018 notes narrowed substantially from the 1,000+ levels in December 2011, to currently 757.9 basis points (7.579 percent). On August 17, Standard & Poor’s revised the outlook on the company’s CCC+ rating from Negative to Stable, and showed appreciation for the efforts made to dispose of assets to improve cash levels. Credit default swaps of the company quote at 20.8 percent upfront, implying the debt is rated at Caa1, according to Moody’s. The aforesaid October 2018 notes are now trading at 90.8 cents on the dollar on August 31, with yield at 8.6 percent.

All that is quite a sea-change. Things may improve further when the retailer spins off, as per plans, about 1,238 stores to raise cash of almost $346 million. If necessary, it could also sell off its Lands’ End clothing brand.