Sears Holdings Corp (SHLD.O) Chief Executive Eddie Lampert has acquired a portion of the company's new $750 million loan in his latest bet on the parent of Sears department stores and Kmart discount shops, people familiar with the matter said.
The loan helps Sears pay down some of its older debt at a time when shoppers are moving away from malls in favor of Internet shopping and the company, which has lost more than $8 billion over the last five years, sees its sales plummet.
Lampert, whose net worth is pegged by Forbes at $2.4 billion, is buying the debt through his hedge fund ESL Investments, the people said last week. He is picking up a couple of hundred million dollars of the new term loan arranged by Bank of America Corp (BAC.N), one of the people added.
Besides Lampert, buyout firm TPG Capital LP also helped fund the term loan, according to the people. The loan, backed by Sears' inventory and receivables, pays an interest rate more than four times higher than the average for the same type of loan to a retail company, according to Thomson Reuters LPC data.
The collateral backing the loan is such that Lampert and the other investors in it would be paid in full in the event of a liquidation, the people said.
The sources asked not to be identified because details of the loan's syndications are not public. Lampert declined to comment through a spokesman last week, and a TPG representative also declined to comment last week.
Sears said in a statement on Monday that it has sufficient financial resources and liquid assets to fund its transformation and meet all of its financial obligations.
The term loan is expected to close on April 8, at which point Sears will receive the proceeds from it.
The new term loan buys Lampert time to either turn around the business or continue to sell off its most valuable assets, said David Tawil, president at hedge fund Maglan Capital.
"Lampert has successfully spun out other pieces of the overall conglomerate over time, and that has gone to shareholders, either through a dividend or spinning out the stock," Tawil said. "That's still a possibility for some of the assets of the company."
Sears has said it is considering selling its Sears Auto Center business, and is also looking into other asset sales. Lampert and his affiliates also own about 50 percent of the outstanding shares of the company's common stock.
Sears had about $3 billion in borrowings as of Jan. 30. Its shares have dropped more than 60 percent in the last 12 months. The company now has a market capitalization of $1.6 billion.
(Reporting by Jessica DiNapoli and Kristen Haunss in New York; Editing by Bernard Orr and Tom Brown)