Berkowitz’s Fairholme Out of Sears Financing Deal

Berkowitz’s Fairholme Out of Sears Financing Deal

A 13D filing by Bruce Berkowitz and Fairholme Capital yesterday reveals their withdrawal from the deal to finance $400 million to embattled retailer Sears Holdings Corp (NASDAQ:SHLD) announced earlier this month.

“The Reporting Persons previously disclosed that The St Joe Company, an affiliate of the Fund and Fairholme, was in discussions concerning possible participation in the $400 million secured short-term loan disclosed on the 8-K filed by the Issuer on September 15, 2014 (the “Short-Term Loan”).  The St. Joe Company was unable to agree on terms for such a participation in light of its investment criteria and has declined the opportunity to participate.  Separately, the Reporting Persons and certain of their affiliates are in discussions concerning a substantially smaller participation in the Short-Term Loan,” said the filing.

According to the filing, Bruce Berkowitz beneficially holds 24% of Sears Holdings Corp (NASDAQ:SHLD).

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Markets jittery over Berkowitz’ pullout

The disagreement on terms, announced after the loan arrangement had been made public, spooked the market and caused a fresh slide in the Sears Holdings Corp (NASDAQ:SHLD) stock. Shares fell to an intra-day low of $24.10 before closing higher at $25.66. Nevertheless, the stock still ended trade almost 3% below the close of the previous session.

Meanwhile, a 13D filing by Eddie Lampert’s ESL Investments on September 24 reveals that financing worth $50 million out of the aggregate loan of $400 million will now be received from PYOF 2014 Loans, LLC, a Delaware limited liability company.

PYOF 2014 Loans enters the picture

“On September 22, 2014, PYOF 2014 Loans, LLC (“PYOF”), purchased a 12.5% participation interest in the Loan from affiliates of the Reporting Persons pursuant to a participation agreement by and among PYOF and affiliates of the Reporting Persons (the “Participation Agreement”),” said the ESL filing.

According to this filing Eddie Lampert and other reporting persons beneficially hold 48.5% of the capital of Sears Holdings Corp (NASDAQ:SHLD).

The loan of $400 million is secured by 25 real estate properties of Sears Holdings Corp (NASDAQ:SHLD). The cash lifeline will be handy for the troubled retailer – it reported a huge loss of $573 million during its second quarter.

Fresh trouble at Sears Canada

In any case, the retailer is likely going to have to sell more of its assets before it returns to profitability. The sale of its holdings in Sears Canada could be one source but news broke yesterday that Sears Canada CEO Douglas Campbell had resigned, raising fresh doubts about the success of the company’s recovery efforts. Campbell has a reputation as a turnaround specialist and is the second CEO to quit Sears Canada in a period barely above a year. The parent company’s attempts to find a buyer for Sears Canada have so far come up empty.

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