The person in control of a majority of Sears shares, CEO Eddie Lampert told the Sears board on Monday that it must address “significant near-term constraints” in its cash position.
Lampert cited an Oct. 15 due date for $134 million in debt payments and said progress must be made “without delay.” He proposed that Sears sell its Kenmore appliance brand, as well as real estate and other assets, to pay down what it owes.
Sears Holdings, the owner of Sears and Kmart, has lost $11.7 billion since its last profitable year in 2010. Since then, sales have plunged 60%, but there is hope that the company can return to a state of profitability.
While not explicitly using to the word “bankruptcy,” Lampert made it known that creditors could be wiped out, which is something that occurs in bankruptcy court. It has also been eluded to that the company could be forced out of business.
Lampert’s hedge fund is a major holder of Sears debt. In August, he offered to have the hedge fund purchase Kenmore for $400 million, and to purchase its home improvement business for up to $80 million more.
In an effort to pay off the debt, there is belief that Sears could sell $1.75 billion in non-real estate assets, with the possibly other assets being sold as well, along with $1.5 billion in real estate.
Lampert would like to see Sears restructure roughly $1.1 billion of its debt, by having creditors either trade it for equity or 25 cents on the dollar for what they are owed.
The status of the debt restricting program is in the hands of the company’s independent board members since Lampert is CEO and is proposing to purchase assets.
Sears issued a statement stating that Lampert’s proposed plan is being pursued, with assistance from legal and financial advisors, but nothing is guaranteed.
The company’s debt already has the lowest possible credit rating from Standard & Poor’s, which leads to the possibility of it defaulting on its debt within the next six months.
“I don’t know if we’d go as far as to say there’s a drop-dead date,” said Robert Schulz, chief retail credit analyst with S&P. “But it sounds like it’s trying to advance on a more accelerated plan.”
