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Sears Receives a Restructuring Proposal from ESL Investments

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ESL’s proposal

Sears Holdings (SHLD) has received a restructuring proposal from ESL Investments, which is headed by Sears CEO Edward Lampert. In the proposal, ESL has stated that for Sears to become profitable, it must reduce debt and the related cash interest obligations and extend near-term debt maturities.

ESL has outlined a series of liability management transactions and strategic asset sales that if executed would reduce Sears’s debt from $5.59 billion to $1.24 billion. To reduce the debt, ESL has proposed to sell assets of $1.75 billion along with $1.47 billion worth of real asset sales and the conversion of $1.12 billion of debt, which would also help Sears achieve 80% savings on interest payments.

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What ails Sears?

Sears has been in deep trouble for a long time, as it continues to witness top-line erosion and muted profitability. For the second quarter of 2018, Sears’s revenues of $3.2 billion fell from 25.6% on a year-over-year basis. Given its dismal financial performance, Sears stock is down 65.4% on a year-to-date basis as of September 24.

Store closures are part of the company’s cost reduction strategy, but they are adding to top-line erosion. A few days back, Sears announced that it would shut down another 46 stores in November. Reduced merchandise and unkempt stores are also driving away shoppers.

As it is bleeding cash, the company has undertaken several initiatives including cutting costs and debt financing. It is also selling assets to pay back debt. It recently announced that it was reducing support and corporate functions at Sears and Kmart to save an incremental $100 million. Sears is also focusing on its digital business through the “Shop Your Way” platform.

In August, ESL Investments announced its intention to purchase the Kenmore brand for $400 million. ESL Investments also proposed the acquisition of Sears’s home improvement products business for an additional $70 million.

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