TPG Specialty Lending is a creditor in the Sears Holdings Chapter 11 bankruptcy, according to LPC’s BDC Collateral, in a case initiated early Monday when the department store chain filed a petition in the US Bankruptcy Court of the Southern District of New York.
The publicly traded business development company holds $17.21 million of an asset-based loan from Sears, which also owns Kmart, Kenmore, Shop Your Way and DieHard. The ABL matures in July 2020 and is priced at LIBOR plus 7.5 percent.
TSLX declined to comment.
Garrison Capital held $1.22 million in first lien term loan debt through the third quarter of last year, BDC Collateral showed.
Sears lost $5.4 billion in 2017 and has seen its annual revenue decline by more than 50 percent over five years, according to court filings. The 122-year-old retailer said that mall traffic has been dwindling by approximately 8 percent each year. It cited dwindling profits and market competition for its decrease in sales, as it has vied with behemoths such as Walmart, Target and Amazon.
Sears arranged a debtor-in-possession financing package that included $300 million in new incremental liquidity from its asset-based lenders. Bank of America, Wells Fargo and Citibank were initial lenders.
This includes $189 million in an ABL facility priced at a base rate plus 3.5 percent or, after the court gives the financing final approval, LIBOR plus 4.5 percent. The DIP ABL term loan is $111 million and has an interest rate of LIBOR plus 8 percent.
Sears chairman Eddie Lampert’s hedge fund, ESL Investments, is also planning to participate in a $300 million junior DIP loan, which is priced at LIBOR plus 9.5 percent.
Sears said these loans will help it close 142 underperforming Sears and Kmart stores and increase its online presence. These loans can be used towards payroll, but not severance, according to court documents.
The retailer wants to optimise efficiencies in pricing, supply chain and sourcing. It will continue to evaluate its other stores’ performance and work to reformat or decrease its real estate footprint.
Daniel Lowenthal, a partner at Patterson Belknap, said that it’s too early to tell whether Sears bankruptcy plan is a viable strategy for the company. He noted that speculation that the retailer would go into bankruptcy has existed for a long time.
“[Sears] has balance sheet problems [and] operational problems,” Lowenthal said. “By their own admission, the time is of the essence and that tells you something.”
Sears has made multiple efforts to save itself. The company has closed nearly three-quarters of its stores since 2013 – including 300 this year – prior to seeking court protection. It has also worked to reformat existing stores.
Sears monetised its real estate portfolio in 2015 and restructured its debt in 2016. The company also hired Mohsin Y. Meghji, managing partner of M-III Partners, as its chief restructuring officer. The company hopes its going-out-of-business sales will tap into the holiday season.
Sears began in 1886 as one of the first catalog-to-consumer companies selling watches. It then grew to become one of the country’s top retailers and created household name brands such as Craftsman and Kenmore. Its stock price was 38 cents per share at press time.
Sears didn’t respond to multiple requests for comment.