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Lampert's/ESL bid was not designated stalking horse status.
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Bids are due on December 28.
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There were 2 hearings last week, and many more are set over the next 3 weeks.
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Much-needed cash could come in from additional sale of intercompany held notes.
The Sears Holdings (OTCPK:OTCPK:SHLDQ) bankruptcy case is shifting into high gear this week, as bids are due on December 28 for its assets. Last week, there were two hearings and a number of critical issues were discussed that impact investors. First, Lampert's/ESL tentative bid was not designated stalking horse status. Second, there was no evidence presented to refute an assertion by a lawyer for a vendor that Sears was “administratively insolvent”. Third, some extra cash may be received from the sale of intercompany held notes based on Judge Drain’s ruling.
Vendor Issues Continue
A lawyer representing one of the vendors objected to the Jr DIP agreement at the December 20 hearing, which I attended. He stated his client is worried that they will not be paid for those goods received by Sears within the 20 days prior to their October 15 bankruptcy filing. These 503(b)(9) claims are administrative claims that are in one of the highest classes (shareholders are in the lowest class). He asserted that Sears was “administratively insolvent”. (That means it is so broke that it will not even be able to pay administrative claims.) The unsettling part was that lawyers representing Sears did not present evidence to refute the assertion of being administratively insolvent. Judge Drain’s response was that the Jr DIP is needed and would help all stakeholders. So, he approved the Jr DIP.
The same lawyer also added color to the present situation some vendors are finding themselves in. He said his Chinese client had vendors supplying them who had “threatened” his client. He did not use the word “violence”, but those us listening inferred he was talking about physical threats. He also said his client could not afford to just accept the 60 cents on the dollar that is currently being offered vendors for their claims. The lawyer also mentioned that he heard over $350 million 503(b)(9) claims existed, which compares to only a reserve being established of $240 million to pay all administrative claims. Judge Drain, therefore, instructed Sears to establish a bar date to file 503(b)(9) claims. This would ensure that the claim class would be treated equally as a group and not first come, first paid. He also questioned why it was not already done.
The lawyer's statements seem to indicate “bankruptcy fatigue” by vendors, which could mean vendors will no longer be willing to deal with financially distressed retailers such as Sears and J.C. Penney (JCP).