Department Stores

Sears pitches its future to lenders as it eyes bankruptcy 

Key Points
  • Sears CEO is meeting with lenders as he pitches his vision for what Sears would look like as a company emerging from bankruptcy.
  • He needs lenders to support his vision in order to enact a so-called prepackaged bankruptcy, rather than a liquidation.
  • Negotiations are ongoing, people familiar tell CNBC, and the investment banks have not yet decided which option to push.
Sears: The rise and fall of the iconic department store

Eddie Lampert is once again trying to sell the idea that he can transform Sears.

Sears Holdings' CEO is meeting with lenders as he pitches his vision for what the retailer would look like emerging from bankruptcy. Part of the plan involves it slimming even further beyond its years of store closures, people familiar tell CNBC. He needs lenders to support his vision in order for an orderly bankruptcy, in which the company files for protection with a business plan that all parties, including its lenders, agree to.

But Sears last profitable year was in 2010, offering little reassurance in his ability to turn the retailer around. It needs vendors' support through the holidays, and many of them have already stopped shipping.

If Sears cannot get its lenders on board, it may be forced to file for bankruptcy without a plan, or, even more dramatic, to liquidate its business.

One idea that Lampert is pitching is a bid for its Kenmore appliances brand and home services business, in addition to real estate, once it files, rather than a traditional court-supervised restructuring, Reuters reported Thursday.

Negotiations are ongoing, say people familiar with the talks. The banks have not yet decided which option to push, two people said. Lenders are evaluating both liquidation and keeping Sears alive after a filing, one of the people said. Such talks include a number of factors, including how Sears would use its remaining collateral, like its real estate and Kenmore brand, to offer debtors protection.

Sears' attempts to return to profitability

For lenders, there is still money to be made if Sears files for bankruptcy. The "debtor-in-possession loan" Sears is currently raising gets paid back the quickest of all of its loans. Liquidation, meantime, can be a chaotic process that lenders may prefer to avoid.

Sears has a $134 million debt payment due Monday that it previously said it may not be able to cover.

Sears lost $508 million during the fiscal second quarter as sales tumbled at a double-digit pace. Its adjusted loss before interest, taxes, depreciation and amortization widened to $112 million, compared with a loss of $66 million during the same quarter a year earlier. Sales at stores open at least 12 months also fell 3.9 percent during the quarter, which ended Aug. 4.

The people requested anonymity because the information is confidential. Sears wasn't immediately available to comment.