Sears files for Chapter 11 bankruptcy amid plunging sales, massive debt

Roman Schwartz
October 15, 2018

The talks with lenders envision a restructuring using the Chapter 11 bankruptcy process, with Sears filing on Sunday at the earliest, said the person, who asked not to be identified discussing confidential matters.

Early Monday morning, Sears announced it had filed for Chapter 11 bankruptcy - which would allow it to reorganize and possibly reemerge from bankruptcy with some part of the business intact - and received commitments for $300 million in debtor-in-possession financing to carry through the bankruptcy period while it restructures its debt and reorganizes its business. But it wasn't able to keep up with shifting consumer habits as online rivals including Amazon.com siphoned off shoppers, while turnaround efforts were hobbled by mountains of debt.

Sears was once the nation's largest retailer and its largest employer.

Sears CEO Eddie Lampert is putting together a proposal to buy the company out of bankruptcy, but creditors appear skeptical and have been pressing for an outright liquidation, according to reports. The company has roughly $5.6 billion in outstanding debt and has dwindled down to about 820 Sears and Kmart stores, down from 2,000 five years ago. A release from the company also says the current Chief Executive Officer will step down, effective immediately.

Over the summer, a special board committee Sears created was resisting a rescue offer from Lampert to acquire assets from it, including its Kenmore appliance name. Last month, Lampert said that Sears had been "significantly impacted" by paying more than $4.5 billion for its pension plans since 2005.

The Sears collapse has been a long time coming, but it's still going to go off like a bomb - perhaps especially so in real estate. Only a handful of full Sears and Kmart stores remain in MI.

Still, it was unclear whether the company would attempt some other restructuring plan and whether Lampert, would devise another plan to save the company he took over in 2013.

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A spokeswoman for the mall's parent company, Washington Prime Group Inc., on Friday said the mall is in "active negotiations to transform" the space. Since 2012, losses have topped US$10 billion.

She said a refrigerator her mother bought at Sears broke after two years and it still hasnt been fixed for nearly a month with no help from the retailer.

It is also weighing the sale of "a large portion" of its stores and said they could be bought by Lampert's hedge fund in a bankruptcy auction.

Still, some suppliers said they negotiated favorable payment terms well ahead of news that it could file for bankruptcy, so they're continuing to ship goods.

In an earlier attempt to avoid bankruptcy, Sears past year sold its Craftsman tool brand to power tool maker Stanley Black & Decker for $900m. But it struggled to get more people through the doors or to shop online.

For generations, Sears served the middle market of working-class homeowners hoping to buy high-quality products, but who could not afford to make the purchases outright without Sears monthly installment programs.

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