Contentious arguments from unsecured creditors who would prefer that Sears Holding Corp. be liquidated means that a resolution on the fate of the bankrupt retailer likely won’t be known until later this week.
Sears reportedly was hoping for bankruptcy court approval earlier in the week so that it could close on the $5.2 billion deal offered by Sears chairman Edward S. Lampert by Friday. The offer was by an affiliate of Lampert’s hedge fund ESL Investments, Transform Holdco LLC.
The snag in the bankruptcy has always been the contention from the unsecured creditors that Sears’ past transactions with Lampert and ESL was rife with conflict-of-interest issues. Those deals include the spin-off of Lands’ End and the creation of real estate investment trust Seritage Growth Properties through the transfer of real estate that used to be owned by Sears. Lampert and ESL have maintained that both sides were advised by separate legal and financial advisors, and that the company’s independent directors had signed off on each deal.
There was a report Monday from USA Today that Sears and Lampert might be in disagreement over how each interpreted the wording of a section of the purchase agreement connected with Lampert’s assumption of $166 million in accounts payables. That report also said that Sears board member William Transier testified Monday that U.S. Bankruptcy Court Judge Robert Drain indicated mid-January that he had a “very strong” preference to save as many jobs as possible when he pushed the parties to negotiate further after initial deal talks between Sears and Lampert hit a roadblock. The parties subsequently agreed to a $5.2 billion transaction, up from the $4.4 billion deal Lampert had put on the table.
A separate report from Reuters Monday afternoon said Judge Drain, sitting in White Plains, indicated he would rule later this week. The report noted that hearings were likely to run into Thursday.
ESL’s offer is to acquire the retailer as a going-concern operation, with at least 425 Kmart and Sears stores to start, and to save about 48,000 jobs.
One point of contention of the unsecured creditors committee is that Lampert will likely have to close more doors, and that means there’s really no certainty over how many jobs actually will be saved. The committee also contends that the business model won’t hold up, which they allege means that Sears will continue as a private company on the path towards a slow liquidation. The unsecured creditors said that if a liquidation is the end result anyway, they’d rather the business liquidate now while the assets still have some value left so there’s more money available to repay unsecured creditor claims.