October 20, 2014 / 11:32 AM / 5 years ago

CORRECTED-UPDATE 2-Sears turns to Lampert again for cash before holiday season

(Corrects paragraph 4 to say “just over $870 million, or about 40 percent”, not most of the over $2 billion, will come from Lampert and his hedge fund)

By Sruthi Ramakrishnan

Oct 20 (Reuters) - Sears Holdings Corp plans to raise up to $625 million through an offering of 8 percent senior notes and warrants, in another effort to boost liquidity amid concerns among suppliers about its finances going into the holiday season.

Sears shares rose about 7.5 percent in early trading.

This is the third time in two months that Chief Executive Eddie Lampert, whose interests will participate in the rights offering, has agreed to pump funds into the retailer.

The company has announced plans to raise a total of just over $2 billion this year, double the target it set in March. Just over $870 million, or about 40 percent, of this will come from Lampert and his hedge fund, ESL Investments Inc, which together own 48.5 percent of Sears.

“ ... This is their second initiative to raise money for the holiday season, which really makes you question - what are they hearing from suppliers?” Belus Capital Advisors Chief Executive Brian Sozzi told Reuters.

“Are they (Sears) starting to get concerned if they can get shipments post holiday season?”

Sears’ deepening financial troubles have forced insurers and banks to raise the cost of guaranteeing payment to vendors, rattling the retailer’s supply chain ahead of the key holiday season.

Sozzi said the interest rate on the notes was “very penalizing” for a company that’s already highly leveraged and it was worrying that Sears could not raise enough from its real estate.

The company had long-term debt and capitalized lease obligations of $2.82 billion and cash and cash equivalents of $829 million as of Aug. 2.

Sears did not say on Monday when the latest offering would close.

Sears also said it would lease out seven stores, including the one at Pennsylvania’s King of Prussia Mall, to discount fashion chain Primark for an undisclosed amount.

The company had 1,077 Kmart stores and 793 Sears stores in the United States as of Aug. 2.

Sears said this month that it would raise up to $380 million by reducing its stake in Sears Canada to 12 percent from 51 percent through a rights offering, in which Lampert and his funds would exercise their rights.

The company also received a $400 million loan last month from ESL Investments. (1.usa.gov/YMzPkk)

Sears raised about $500 million from the spinoff of its Lands’ End clothing business in December and $165 million from the sale of real estate.

Sears’ second largest shareholder, Fairholme Capital Management, indicated that some clients planned to subscribe in the latest offering, the retailer said.

Each subscription right will give the holder the right to buy one unit, comprising a senior unsecured note due 2019 as well as warrants, the number of which will be determined after the principal of the notes is fixed.

Each warrant will entitle the holder to buy one common share for $28.41, the price at which Sears shares closed on Friday on the Nasdaq. The warrants can be exercised up to five years after the offering closes.

The company’s shares were up 5 percent at $29.84 on the Nasdaq. Up to Friday’s close, the stock had fallen about 28 percent this year. (Editing by Kirti Pandey)

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