Sears Holdings Corp. CEO Eddie Lampert is opening his wallet once again to help keep the struggling retailer in business, a move that could help placate vendors after an uncertain holiday season.
Lampert, a hedge fund manager and Sears’s biggest investor, will offer a $200 million letter of credit to the department-store chain through affiliates of his firm, ESL Investments Inc. The amount could be expanded to as much as $500 million with the consent of lenders, according to a statement Thursday.
The move signals that Lampert remains committed to bankrolling Sears, even as the business suffers from dwindling sales and billions in red ink. After acquiring the once-mighty retailer more than a decade ago, he has sold off assets and real estate in a bid to return it to profitability. The 54-year-old became CEO of the company, which also includes Kmart, almost four years ago.
It’s a troubling sign that Lampert himself seems to be the only one willing to lend to Sears, said Noel Hebert, an analyst at Bloomberg Intelligence.
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“The only person lending here is Eddie,” he said. This isn’t a “normal course” of action.
The stock jumped as much as 8.7 percent after the letter of credit was announced, though it gave back some of the gains later in the session. As of 1:37 p.m. in New York, the shares were trading at $8.50, up 3.9 percent for the day. Sears had lost more than 60 percent of its value this year before Thursday’s bounce.
Lampert’s firm also is helping support Seritage Growth Properties, the real estate investment trust spun off from Sears in 2015. ESL will provide a $200 million unsecured line of credit, Seritage said this week.
Billions in Losses
Earlier this month, Sears reported another huge quarterly deficit – $748 million – bringing its total losses to about $9.4 billion in the past eight years. The company needs to raise roughly $1.5 billion to make it through 2017 comfortably, according to Christina Boni, an analyst at Moody’s Investors Service.
Thursday’s announcement of a “letter of credit” stops short of providing an actual cash infusion, Hebert said. Rather, it provides a backstop to vendors.
Lampert and his hedge fund owned about half of Sears’s shares as of earlier this month. He owns more than $1 billion in Sears’ debt, according to data compiled by Bloomberg.
The latest letter of credit also raises concerns about the holiday season, which is the most lucrative time of year for retailers, he said.
“They weren’t able to generate a ton of cash out of it – if any,” he said.
ESL Investments will provide the credit through Citigroup Inc. Sears Chief Financial Officer Jason Hollar said in Thursday’s statement that the company has numerous options for financing.
“We will take actions to adjust our capital structure, generate liquidity and manage our business to enable us to execute on our transformation while meeting all of our financial obligations,” he said.