Sears, Already Struggling, Loses Participant in Crucial Loan
With losses piling up, Sears Holdings, the beleaguered retailer owned by the hedge fund manager Edward S. Lampert, has lost a crucial lender when it is most needed.
On Thursday, Fairholme Capital Management, one of Sears' largest shareholders, said it was unable to reach an agreement with St. Joe Company, a Florida real estate company, to participate in a $400 million loan to Sears. Earlier this month, Sears announced that it had turned to its chief executive, the billionaire Mr. Lampert, for the $400 million loan.
Fairholme, which has a 23 percent stake in Sears, had been working to broker a loan deal with St. Joe Company and Mr. Lampert's hedge fund ESL Investments to help Sears fend off looming financial losses.
'The St. Joe Company was unable to agree on terms for such a participation in light of its investment criteria and has declined the opportunity to participate,' Fairholme said in a filing with the Securities and Exchange Commission.
Fairholme added that it was in discussions with lenders about providing a smaller short-term loan but did not have any other plans or proposals at the time of the filing. It did not disclose how much St. Joe would have contributed to the $400 million loan.
Sears Holdings' shares fell 2.8 percent to $25.66 in late afternoon trading.
The timing could not be worse for the Sears, based in Hoffman Estates, Ill., which has been hemorrhaging money. Last month, the retailer told investors that it lost nearly a billion dollars in the first half of the year. The results failed to meet Wall Street analysts' already-pessimistic forecasts, hitting the retailer's share price hard.
Sears, which has been hurt by years of underinvestment in its stores and declining sales, has sold off real estate and spun off businesses like Land's End to raise cash to stem a negative operating cash flow estimated at $1 billion to $2 billion.
The fact that Sears had to turn to its lenders for help was seen by many analysts as desperate. One analyst, Gary Balter at Credit Suisse, said that the storied retailer was nearing 'the end,' and that liquidation was the logical next step.
Adding to its troubles, Sears Canada on Thursday announced that its chief executive, Douglas C. Campbell, would be stepping down.
The Toronto-based Sears Canada is one corner of the increasingly troubled Sears retail empire.
Sears is also exploring a sale of its 51 percent stake in its Canadian unit, but has not found any takers.
Sears Canada has generally performed better than its parent, posting $446.5 million in net income last year. Still, the retailer is losing ground to local competitors as well Walmart, Target and other American retailers that have made inroads into Canada. In its latest quarter through early August, Sears Canada lost $21.3 million, despite layoffs and lease sales.
In a statement, Sears Canada said that Mr. Campbell intended to continue as chief executive until the retailer finds a replacement, but will resign no later than Jan. 1.
A Sears spokesman, Howard Riefs, said he had no immediate comment.
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