Sears Holdings Corp in recent days reached an 11th-hour deal with lenders that will allow the troubled retailer to keep hundreds of its stores open through the holidays. The deal followed days of marathon negotiations at the New York offices of Sears’ law firm, the pioneering American retailer and its bank lenders, Bank of America Corp., Wells Fargo & Co., and Citigroup Inc. The banks are set to provide a so-called debtor-in-possession loan of about $500 million, which will be used to keep some of its stores open and lights on for the foreseeable future, according to people familiar with the situation.
Edward Lampert, chief executive officer of Sears, who has controlled the company through his hedge fund ESL Investments, believes the company can reorganize around roughly 300 of the most profitable stores, according to a person familiar with the situation. As part of the deal, slated to wrap up over the weekend, Sears will close at least 150 stores immediately after seeking bankruptcy protection, another person said. Meanwhile, another 250 stores will be under evaluation.
The plan that Sears and its lenders reached over the past week isn’t unfamiliar. Dozens of retailers have sought chapter 11 protection in recent years, namely because of the consumer shift to online shopping, expensive store leases and heavy debt burdens.
Retailers such as Claire’s Stores Inc., Bon-Ton Stores Inc., Payless ShoeSource Inc., and Gymboree Corp. have all sought chapter 11 protection with early plans to close stores. For some, including Gymboree, Payless and rue21 Inc., having a so-called prepackaged reorganization plan in place allowed the companies to emerge from bankruptcy protection still operating with a smaller footprint.
Others haven’t been as fortunate. Toys “R” Us Inc. and Bon-Ton Stores each sought chapter 11 protection with the hope of surviving. Bon-Ton, which operated more than 250 stores under banners including Carson’s, Bergner’s and Elder-Beerman, looked for an owner or investor that would keep the chain alive, but fell short and was sold to a small group of bondholders and pair of liquidators that closed the entire chain.
When a company seeks bankruptcy protection, it must receive a judge’s approval to cut any checks or make most decisions regarding its path forward, including paying its employees, its utilities bills and other standard operations procedures. In addition, the company will likely seek immediate approval to begin using its bankruptcy loan, which will be used to make these payments and keep some stores operating.