S&P downgrades Sears

S&P said it lowered the rating on Sears Holdings Corp.'s $1.25 billion 6 5/8% second-lien notes to B- from B.

The agency also said it revised the recovery rating to 2 from 1.

The 2 recovery rating indicates 70% to 90% expected default recovery.

The other ratings on Sears, including the CCC+ corporate credit rating, are unchanged and the outlook remains negative.

The downgrades capture the impact of various debt financings that Sears has put in place since the last review: a $300 million second-lien term loan that ranks pari passu with the 6 5/8% notes; and $1 billion of debt financing secured by liens on about 90 Sears and Kmart stores, S&P said.

These financings were provided by certain affiliates of ESL Investments Inc., a major shareholder of Sears, the agency said.

The downgrades also reflect the reduction in the projected inventory value, given a declining store count, S&P said.

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