Sears Holdings Corp. will get a $400 million secured short term loan from the hedge fund of its CEO and chairman Eddie Lampert to sustain general corporate purposes, the company announced Monday in a filing with the Securities and Exchange Commission.
The first $200 million of the loan was secured Monday and the balance will be funded at the end of the month. The loan, backed by a first priority lien on 25 of Sears’ properties, is scheduled to mature at the end of this month, but provided there is no default, the maturity date could be extended to Feb. 28, 2015.
Lampert’s loan to the struggling retailer comes less than one week after Fitch Ratings downgraded Sears’ credit rating to “CC” from “CCC” citing the “magnitude” of its decline in profitability and gross cash burn.
Fitch expects Sears’ cash burn to reach $2 billion or more annually, and given that, the ratings agency said Sears may not be around past 2016.
Even if Sears could capitalize on some of its liquidity options like selling its 51 percent stake in Sears Canada or issuing debt, Fitch said it doesn’t expect any coming catalysts to slow the rate of profitability decline and there seems to be little hope for operations continuing beyond the next couple of years.
For its second quarter ended Aug. 2, 2014, Sears Holdings net loss totaled $573 million compared to $194 million in the prior year period. Sears full line stores’ comparable store sales grew 0.1% in the quarter, and Kmart comparable store sales dipped 1.7%.