Sears agrees to repay short-term loan with JPP, gets maturity extension

By Jennifer Chiou

New York, Feb. 26 – Sears Holdings Corp. entered an amendment to its $400 million secured short-term loan with JPP II, LLC and JPP, LLC, according to an 8-K filing with the Securities and Exchange Commission.

The company has agreed to repay $200 million of the outstanding principal amount of the loan with accrued interest.

After the receipt of that payment, the lender has agreed to release its first-priority lien on 13 properties owned by Sears Holdings and the other borrowers, which include Sears, Roebuck and Co., Sears Development Co. and Kmart Corp.

As reported in September, the first $200 million of the loan was funded at closing on Sept. 15, and the remaining $200 million was to be funded on Sept. 30.

The company also extended the maturity date of the loan to the earlier of June 1, 2015 and the date Sears receives sale proceeds under a sale/leaseback or similar transaction involving the sale or other transfer by the company of at least 200 company properties to a newly formed real estate investment trust capitalized in part through a rights offering to Sears stockholders.

The loan will continue to have an annual base interest rate of 5% on the principal amount outstanding, the 8-K noted.

Prior to maturity, the borrowers may make a one-time election to re-borrow up to $200 million from the lender.

As stated previously, the loan is guaranteed by Sears Holdings and is secured by a first-priority lien on 25 real properties.

Sears said it is continuing to work on forming a REIT that would purchase some of its properties and manage them “like a pure real estate company” while Sears Holding would develop “as a membership company, without the significant asset intensity of its traditional retail business.”

Sears anticipates the separation could occur in May or June. The transfer of 200 to 300 Sears and Kmart stores would generate more than $2 billion of proceeds.

The REIT would be funded by equity raised through a rights offering and debt.

Sears is a Hoffman Estates, Ill.-based retailer.

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