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Sears Chairman Eddie Lampert seemingly swooped in once again to save Sears, with a plan to pay to support it through its bankruptcy operations. Now, though, there is a new catch. He will only put in more money if his investment is further protected.
If that catch isn't resolved, it could cast Sears' future in serious doubt and lead to the end of the famed retailer.
When Sears filed for bankruptcy last week, it said Lampert's hedge fund, ESL Investments, was in talks to lead a $300 million debtor-in-possession loan to support the retailer through bankruptcy. That loan came in addition to the $300 million it secured from investment banks Bank of America, Citigroup and Wells Fargo. It was junior to the investment banks' loan, meaning ESL would get paid back after the banks.
But Lampert doesn't like to be second when it comes to Sears. He has come back to the investment banks over the past week asking to improve the terms of his loan, people familiar with the matter tell CNBC. Specifically, he is asking to have the "first lien" on certain assets, putting him first in line to be paid back.
Sears on Wednesday postponed a hearing for its junior DIP loan that was set for next week, without providing a new date. Talks between the parties are ongoing and constantly changing, one of the people said. It remains possible Lampert raises more money to support the junior DIP, the senior DIP lenders agree to his requests or he accepts the senior DIP terms as is.
After years of spinning off and selling real estate and brands, Sears has little to offer its lenders by way of collateral. That means ESL and primary DIP lenders are clamoring over the few assets that remain — like its inventory and available real estate.
Any change to the terms of the senior DIP is complicated by the fact that it has already received interim approval from the bankruptcy court.
Time is of the essence. Sears is burning through cash so rapidly that if it doesn't secure more money, it could run out of cash to support its business in as soon as two weeks, it recently warned in papers filed with the bankruptcy court. Sears could solve that problem by closing more stores beyond the 142 it has already identified. Doing so, however, may limit Lampert's interest in buying the company and keeping it alive.
Sears has said it is in talks to sell the business to ESL. Lampert, though, only wants to buy the business at a roughly 400-store footprint, one of the people familiar said. It is unclear if there are buyers for the business beyond Lampert.
The company had roughly 700 stores when it filed for bankruptcy.
If it cannot find a buyer, Sears will likely have to liquidate. The 125-year-old company has more than 68,000 employees.
Sears warned in its documents filed with the bankruptcy court last week that without junior DIP financing its ability to sell as a going concern "will be seriously jeopardized."
The people requested anonymity because the information is confidential. ESL declined to comment.