Sears Canada has been granted creditor protection under the Companies’ Creditors Arrangement Act in a bid to restructure the business.
Sears Canada Group has been authorized to obtain debtor-in-possession financing in the amount of $450 million Canadian with the company’s existing ABL lenders, with Wells Fargo Capital Finance Corporation acting as administrative agent, and the company’s existing term loan lenders, with GACP Finance Co., LLC acting as administrative agent.
The retailer cited liquidity issues and legacy business units as the cause of the filing. Sears Canada says it hopes to exit CCAA protection later this year in a position to continue with its latest initiatives.
Sears Canada announced it will be closing 20-full-line stores, 15 Sears Home locations, 10 Sears Outlets, and 14 Sears Hometowns. As a part of these developments, the company will eliminate 2,900 jobs throughout its retail network and corporate offices in Toronto.
(See the other apparel retailers that have filed for bankruptcy in the last year: Infographic: The Accelerating Pace of Apparel Retail Bankruptcies)
Like its U.S. counterpart, Sears Canada has been trying to turn around their flagging business. That has meant a robust strategy that has included streamlining its assortment, launching an off-price model called The Cut @ Sears, and consolidating its house brands under one umbrella throughout the store. For the U.S. retailer, the efforts have mainly focused on monetizing assets.
Though separate companies, the Canadian and U.S. Sears businesses have seemed to be on the same path. In March, Sears Holdings raised alarms when it indicated doubt over whether it could continue as a going concern. Sears Canada made a similar statement just days ago, along with its first quarter results, which showed a 15% decline in revenue to $75.4 million and a net loss of $144.4 million compared to $63.6 million in the same quarter last year. At the time, the company announced it had retained BMO Capital Markets, as a financial advisor, and Osler, Hoskin & Harcourt LLP, as a legal advisor. The board of directors and the special committee of the board of directors has retained Bennett Jones LLP as legal advisor.
It was Sears Holdings’ efforts to stave off what many see as the inevitable that lead to the formation of the standalone Sears Canada operations in 2012. Sears Holdings owns about 12% of the business, while its CEO and chairman Edward Lampert holds approximately 45% of the company’s shares.
As questions about the retailers’ future mounted, Sears Holdings’ only comment came through a spokesperson who reportedly said, “Sears Canada is—and has always been—a separate publicly traded company, which has its own balance sheet, management team and board of directors.”