It never hurts when your CEO owns a hedge fund that can bail you out without having to wait on a lender’s board or other concerns.
In addition to being the acting chief executive of the beleaguered retailer, Edward Lampert also owns ESL investments and holds more interest in Sears Holdings Corp (NASDAQ:SHLD)’s success than any one person. As of today, ESL has supplied Sears with a collateralized $200 million and will double that amount before the end of September according to a regulatory filing made by the Hoffman Estates, Illinois-based retailer that is bleeding cash.
Sears Holdings Corp (NASDAQ:SHLD) – Big quarterly losses
Sears posted a last-quarter (Q2) loss of over $570 million and announced that it is looking to secure a long-term capital-structure deal from its lenders. Enter the man who is well aware of the retailer’s problems. He announced early this year that the company was looking to raise $1 billion to help with its liquidity as it looks to turn things around this year alongside the American economy that is showing signs of finally breaking out after years of struggles. Home Depot has enjoyed a renewed strength to the housing market but that has yet to translate for Sears.
Corsair Capital, the event-driven long-short equity hedge fund, gained 6.6% net during the second quarter, bringing its year-to-date performance to 17.5%. Q2 2021 hedge fund letters, conferences and more According to a copy of the hedge fund's second-quarter letter to investors, a copy of which of ValueWalk has been able to review, the largest contributor Read More
Let’s be clear, this isn’t altruism and the loan will be used for “general corporate purposes,” presumably having some cash on hand.
“It’s an easy deal for him to do” because it is short-term and secured, Mary Ross Gilbert, an analyst at Imperial Capital LLC, said today in an interview. “It’s no surprise because we already know that the company has significant cash burn.”
The loan “allows us additional financial flexibility, particularly as we enter the holiday season,” said Howard Riefs, a Sears spokesman today by email. “We want to be proactive in demonstrating to our vendors and other constituents that we will continue to generate liquidity needed to invest in our business and meet all of our financial obligations.”
Sears Holdings Corp (NASDAQ:SHLD) – Terms of the loan
The loan is secured by a first lien on 25 Sears locations and matures at the end of 2014. Sears does, however, have an additional two month extension available to it if it deems it necessary. Lampert and ESL provided the loan at a base annual interest rate of 5%.
Sears was interested in operating “with a more predictable source of funding” as opposed to the commercial paper borrowing that it was using to continue its daily operations.
The retailer’s stock has fallen roughly 16% in 2014, 2.2% of that was reflected in yesterday’s close at $33.52.