ARE SEARS AND KMART HEADED FOR A SHUTDOWN?
Sears Holding (NASDAQ: SHLD) has been struggling for years, and it's possible THE END FOR THE RETAILER MAY BE COMING SOON.
Moody's has lowered its opinion on the company's continued ability to survive without outside cash, the credit rating agency reported. The company recently took $300 million from a hedge fund controlled by its CEO, Eddie Lampert.
The downgrade from Moody's shows that the rating agency believes the company -- which operates both Sears and Kmart -- will need to continue to raise capital if it wants to keep operating.
"We recognize the risks associated with relying on these sources and continued shareholder support to finance its NEGATIVE OPERATING CASH FLOW which is estimated by Moody's to be approximately $1.5 BILLION THIS YEAR," said Christina Boni, a Moody's vice president in a release about Sears.
How bad is it?
Moody's noted that Sears LOST $836 million during fiscal 2015, and its operating cash flow deficit (including pension and post-retirement contributions) was approximately $2.2 BILLION.
"It remains uncertain if the company's operating strategies will stem its continued losses and be sufficient for its cash burn to approach breakeven levels," the agency wrote. "While the company maintains a sizable asset base its DEBTS ARE SIGNIFICANT with approximately $3.5 BILLION OF FUNDED DEBT as well as an UNFUNDED PENSION AND POST RETIREMENT OBLIGATION OF $2.1 BILLION. The ratings also reflect our view on the uncertainty of the viability of the Kmart franchise in particular given its meaningful market share erosion."
THAT'S A PRETTY BASIC VIEW OF THE CIRCUMSTANCES; UNLESS SOMETHING BIG CHANGES, SEARS HAS MORE DEBTS THAN IT CAN PAY.