Coverage: Sears is headed to bankruptcy court

Sears, once the country’s largest retailer, is preparing a Chapter 11 bankruptcy filing to cut its debts and keep operating at least through the holidays.

Michael Corkery of The New York Times had the news:

As part of the reorganization plan, which is expected to be filed on Sunday night, Sears is to receive a loan of more than $500 million to help keep its shelves stocked and employees paid, these people said. The company is also planning to close as many as 150 additional stores as it tries to reduce costs and find some way forward.

“It’s a sad day for American retail,” said Craig Johnson, president of Customer Growth Partners, a retail research and consulting firm. “There are generations of people who grew up on Sears and now it’s not relevant. When you are in the retail business, it’s all about newness. But Sears stopped innovating.”

Founded shortly after the Civil War, the original Sears, Roebuck & Company built a catalog business that sold Americans the latest dresses, toys, build-it-yourself houses and even tombstones. In their heyday, the company’s stores, which began to spread across the country in the early 20th century, were showcases for must-have washing machines, snow tires and furniture.

More recently, Sears became known for another distinction — Mr. Lampert’s audacious feats of financial engineering. He has spun off numerous assets from the retailer into separate companies that his hedge fund invests in.

Charisse Jones of USA Today reported that the company faces a Monday deadline to make a debt payment:

Now, Sears is facing a critical Monday deadline to make a $134 million debt payment. Reports this week by the Wall Street Journal and CNBC said Sears had begun consulting with advisers to prepare a possible bankruptcy filing.

Sears CEO Eddie Lampert said last month in a letter that the company “must act immediately” on his most recent proposal to sell more assets and slash debt.

Lampert had offered to buy Sears’ popular Kenmore appliance brand for $400 million.

Reports of the potential court filing seemed to please investors, with the company stock price spiking 18.09 percent – though that amounted to just 40 cents a share.

Misyrlena Egkolfopoulou, Eliza Ronalds-Hannon and Allison McNeely of Bloomberg News documented the company’s huge losses:

Since 2012, Sears losses have topped $10 billion. This past week, Sears took a number of steps to prepare for the filing, including hiring a boutique advisory firm, naming a new restructuring expert to its board of directors and negotiating a possible bankruptcy loan. Wells Fargo & Co., Citigroup Inc. and Bank of America Corp. are potential providers of a loan in bankruptcy, according to people with knowledge of the matter, since they’re behind the company’s existing asset-backed loan.

It’s still unclear whether Lampert, who became chairman and CEO in 2013, will use his own money to keep Sears afloat, something he has been doing for years to offset losses. He’s done so through deals and infusions from his hedge fund, ESL Investments Inc., which is the retailer’s biggest equity holder and a major debt holder.

Fate of Employees

Sears employs about 89,000 people and their fate remains uncertain. A bankruptcy could trigger one of the biggest pension defaults in the U.S. as Sears employees’ pension has gone underfunded for years. Last month, Lampert said that Sears had been “significantly impacted” by paying more than $4.5 billion for its pension plans since 2005. In either scenario, Sears would probably jettison its pension obligations, with the government’s Pension Benefit Guaranty Corporation taking over the liabilities.