Sears Holdings inks $407 million pension contribution deal with PBGC

By Caroline Salls

Pittsburgh, Nov. 8 – Sears Holdings Corp. entered into an agreement with the Pension Benefit Guaranty Corp. to release 140 Sears properties from ring-fence arrangements in exchange for $407 million in contributions to the company’s pension plans, according to a news release.

Sears said this agreement gives it financial flexibility through the ability to monetize properties, and, in addition, provides funding relief from contributions to the pension plans for the next two years.

EBITDA projection

According to the release, Sears expects the third-quarter net loss attributable to Sears Holdings’ shareholders to improve by about $190 million, while adjusted EBITDA is expected to improve by roughly $100 million compared to the third quarter of 2016.

The company said this marks the second consecutive quarter of at least $100 million year-over-year improvement in both metrics.

Sears said it achieved its annualized cost savings target of $1.25 billion through the simplification of its organizational structure, streamlining of operations and closure of underperforming stores, and generated additional cash proceeds of $167 million after the end of the quarter from real estate transactions and commercial arrangements.

The company said its cash-generating measures have included sales of significant assets, the closing of large numbers of stores and the sale of the Craftsman brand. Earlier this month, Sears announced the closure of 63 additional unprofitable stores, which are expected to close after the holidays.

Loans paid down

Proceeds were used to pay down the company’s outstanding real estate loans and revolver borrowings, resulting in an adjusted availability on its revolving credit facility and general debt basket of $185 million and $120 million, respectively.

In addition, Sears said it paid down outstanding borrowings under a term loan maturing in June 2018 by $205 million during November and launched a consent solicitation to amend the borrowing base definition in the indenture for its 6 5/8% senior secured notes due 2018, which, if approved by the requisite holders of the notes, would provide additional borrowing availability.

“Our recent actions further demonstrate our ability to manage our business while meeting our financial obligations,” chief financial officer Rob Riecker said in the release.

“We continue to review our capital structure to maximize our additional financial flexibility. In addition, we will continue to evaluate alternatives to meaningfully reduce cash interest payments in 2018.”

Third-quarter results

Sears said it had total revenue of $3.7 billion during the third quarter, compared with $5 billion in the same quarter of 2016, with store closures contributing to more than half of the decline. The company said revenues were negatively impacted by reductions in the number of pharmacies in open Kmart stores, as well as the reduction in consumer electronics assortments in both Kmart and Sears stores.

Also, the company said it expects a net loss attributable to Sears Holdings’ shareholders of between $525 million and $595 million in the third quarter, compared to a net loss of $748 million in the third quarter of last year.

As of Oct. 28, the company said it had utilized $805 million of its $1.5 billion revolving credit facility due in 2020, consisting of $424 million of borrowings and $381 million of letters of credit outstanding. The amount available to borrow under Sears’ credit facility was $39 million.

Availability under the company’s general debt basket was $99 million as of Oct. 28.

Sears said its total cash balances were $354 million at Oct. 28, including restricted cash of $154 million. Short-term borrowings totaled $1.1 billion at the end of the third quarter, consisting of $40 million of commercial paper, $424 million of revolver borrowings, $413 million of line-of-credit loans and $185 million of borrowings under a second amended loan agreement in October.

Total long-term debt was $3.3 billion as of Oct. 28.

Sears is a retailer based in Hoffman Estates, Ill.

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