Thread regarding Sears layoffs

As of end of 2015 and mid 2014 the net book value of the kcd brands was $1 billion- craftsmen was by far the most valuable and that's effectively gone for an upfront payment of $575 million with a lump sum of $250 million in 3 years... So the net book value is pretty close - maybe it should have been $1.2 billion. The net book value of the 125 properties is $700 million. Maybe that's a bit low as well but it ain't a billion too low. The brands and the real estate may not even cover the pension deficit. There will be no equity left for shareholders - any extra equity ( unlikely) would still be kept by the pbgc to make up for continued pension contributions. Afraid if you think there is a pot of equity after bankruptcy you are wrong.

Eddie Lampert is not stupid. Is he bad at retail management? Who knows? Retail management isn't what he's doing...

If the properties that were ring fenced are worth significantly more than the pension deficit which is what is being suggested below then why did the pbgc also insist on ring fencing kcd as well?

I have never seen a company enter into bankruptcy with a share price higher than the months preceding the bankruptcy.

There were 125 properties ring fenced - but some of those have been as per the terms sold off- there may be 100 or less left now. The deal to ring fence those ends in a couple of years I believe then I assume they are not protected. The pension deficit would take out most if not all of those properties. If Sears goes bankrupt it's not going to stay at $2 or $1 it's going to pennies- also Eddie sold 2 million shares Jan 9th...

The point that was being made is that the reinsurance holding company is bankrupt IMMUNE. In the event of a bankruptcy it can't be seized to pay the debt, only the pension deficit. The bondholders will be left holding the bag and Eddie and the shareholders will be allowed to keep what is left in it after the pension has been paid. And the book value of those properties doesn't tell the whole story. Those properties were selected years ago because they have the highest redevelopment potential. Once the Sears/Kmarts are closed and either the building or the land are redeveloped, they will be worth much more than their current listed value. This is

why Eddie, Bruce Berkowitz and others won't sell their stock. It is trading at historic lows, yet whenever there is a spike and it goes up, they don't want to cash out. They are in it for the long haul - i.e. after bankruptcy. Once the debt is wiped away and the pension caught up, there will be plenty left for him. Selling Land's End, the Hometown Stores, the Seritage REIT, etc. weren't efforts to raise cash for the company. They were ways for him to separate assets from failing Sears Holdings. He now owns those and is loaning the company money secured by some of the more valuable properties, which have also been undervalued. When the loan isn't paid back, he will get even more real estate. After bankruptcy, he will also still own the assets in the reinsurance sub. He isn't sitting around trying to find ways to save the company, he is only trying to find ways to get assets before its inevitable collapse. It is all a big shell game.

thanks- great post.

1zuf- couple of points-it does matter how many assets are left since that determines how long the company has left at cash burn.

You are partly right about the reinsurance- 125 stores were placed into it to cover any portion of the deficit not covered by kcd. We believe that the proceeds from crafsmen will go to the pbgc, and that will cover the contributions for 2016. That still leaves the $2.1 billion deficit. K and d are proving problematic to sell and most likely any sale would be used to cover 2017's pension contribution around $600 million.

That still leaves the deficit- you state that the 125 stores were the very best real estate left. There is no basis for that statement, however, lets say that was true and each one is worth an average $20 million. At that level the 125 stores would only just cover the deficit- leaving nothing left in a bankruptcy.

Now some reality that you have missed, some of those 125 stores have been pledged and sold off already- that was in the agreement that with the pbgc's blessing some of the stores could be monetised and they have been. When Sears canada was split off - sears re-insurance had covered them- a new liability scheme was introduced so we got to see what was in the re-insurance comany and it was very little.

FWIW, my assesment of whats left is 206 properties worth $2 billion, kd worth $750 million, sears home services worth $500 million, innovel solutions worth $1 billion sears auto centres worth $500 million. I think i have been generous. Lets round up to $5 billion in assets.

I expect the 4th quarter loss will be $1 billion for a full year loss of circa $2.4 billion. 2017 will be worse but lets say $2.5 billion needed to cover losses. There is a $500 million loan due in July, $600 million pension contribution due in 2017 and a few smaller loans due (lets leave those out of it. So $3.6 billion needed this year. If they could sell all the assets and use them soely to keep the lights on, they would enter 2018 with $1.4 billion of assets or cash left. That would last 6 months or so.

This is why I think sears has 18 months-2 years if it sells absolutley everything and cannot reduce its cash burn.

Just my thoughts not intended to offend anyone. Peace and good luck all.

1zuf-- nice post with good information. My question is always how legal is this? Is it totally illiegal or is this a grey area of corporate raiding for personal gain?

There is one thing that many are missing here. I do agree with the 2 posters whose point is that there are still assets left. Not everything left is worthless. And putting an exact time on the company's demise has proven to be problematic for many business sites. The problem is that while the company does have assets left of value, after they are sold, the money is just used to pay current bills and nothing is turning around. It is just being sold off in pieces and the proceeds wasted. How many valuable assets are left and their value isn't the point. Whatever is left is just going to be used to prolong the inevitable. In my opinion, he is using the loan/collateral as a scheme to get remaining assets for himself.

This is much like the way he put the very best real estate into a reinsurance/guarantee subsidiary. He then issued shares on it so it would be bankrupt immune and the assets it holds would not show up on Sears Holdings balance sheets. Many people have debated this on the forum in several posts because they have misread a report about the pension. They thought that the report said the entire reinsurance holding company would be used to pay a part of the pension deficit. In actuality, they pledged a part of the group to cover all the deficit, as you need collateral to cover an entire obligation, not just a part of it. You wouldn't loan someone five thousand dollars with a four hundred dollar TV as the only security, would you ? As other posters have been arguing about in hotly debated threads, this means that there will be assets left after bankruptcy. How much is left is subject to a great deal of speculation and I don't want to start that again here.

I have worked in corporate finance for 35 plus years, and I have seen other unorthodox tactics used for personal gain, but not on this level for so few beneficiaries. My point in this is that it doesn't matter what they own as it will not be used for the benefit of the company. Eddie Lampert is just trying to separate as many assets as he can for himself and his cronies. He may have things to sell but it is a moot point.

@1wts Try shcrealestate.com. I saw a bunch of listings there.

Last poster - where did you see the info that 160 of them are vacant and only worth $300k please?

SHLD has over 160 vacant properties some for sale for 300K

well one thing we can all agree on is that there are 206 properties left. Unless you disagree with the latest 10k filing and moodys and fitch. From there pick your number as to hw much each one is worth to arrive at their total value, some will say as little as $500 million some will say as much as $3 billion. The answer is somewhere between. What we also know is they are bleeding $10 million every day in operating losses never mond having to repay debt and the pension deficit. Even if the real estate was worth $3 billion it would be gone in less than a year. Peace.

Ha Ha Ha Ha !! It is funny how someone can make one post and get all you trolls going. I do agree with @hip on one thing though. After the Seritage spin off, and actually for a while before, everyone keept saying that what is left is worthless. Then they get a billion dollar loan guaranteed by the real estate and everyone says that was a fluke. Then they sell properties for a 14 million average, and everyone says THOSE were the high end and the exception, and now there is nothing left. Next they will sell more real estate for millions and everyone will come on here and say "but those were ... " LOL- I think you get my point.

yes we all know $14 mill is a lot compared to what seritage paid- I would say $8-10 mill for about 100 of the properties left - the other 100 odd are vacant - have been for years, and worth nothing.

@hip - On another site someone else commented about the 14 million being on the high side. This is the answer that someone provided as the reason for the premium price.

I agree that 7 to 10 per property is about right but CBL sweetened the deal with the offset that Sears is still responsible for maintenance, taxes, and utilities on top of rent.

do you think they could get $14 million for the rest of the real estate- probably not but lets be optimistic and say they can get $10 million (thats more than seritage paid), they have 206 unencumbered properties left- so they would be worth a little over $2 billion... which they would burn through in about 2.5 quarters ..... not looking so chirpy now is it?

We all know the end is fast approaching. But, WOW an average of over 14 million per property. That sure is a lot of money for all this "worthless" real estate.

and 2 sears auto centres included as well in the price- those 5 the best of whats left.