Sears Gets Liquidity Boost with Approval to Sell Craftsman Last Thursday, Sears Holdings Corp. (Caa2 stable) said that the Pension Benefit Guaranty Corp. (PBGC) had approved Sears’ sale of the Craftsman brand to Stanley Black & Decker Inc. (Baa1 stable) for compensation valued at about $900 million. The sale is credit positive for Sears because it received an initial payment of $525 million (subject to closing costs and working capital changes) that will help shore up the troubled company’s liquidity. However, the company’s performance continues to be overshadowed by bigger issues that are causing its asset base to erode as it labors to bolster its liquidity and stem losses. Sears on Thursday also reported an operating loss of approximately $1.8 billion for the fiscal year that ended in January 2017. In exchange for the PBGC’s consent to complete the purchase, a $250 million cash payment from Stanley Black & Decker due in 2020 will be subject to a lien and contributed to the PBGC’s pension plans. The payment’s value will be credited against some of Sears’ minimum pension obligations in 2017, 2018 and 2019. A lien was also granted to the PBGC on a 15-year royalty stream of new Craftsman sales (2.5%-3.5% of sales) and $100 million of real estate assets. The Craftsman sale is one of several steps that Sears has taken to improve its finances in 2017. The company previously announced an agreement to amend its asset-based credit facility, which provides an additional $250 million of general basket borrowings. The credit facility shrank to $1.5 billion from $1.97 billion to reflect a smaller borrowing base as the company reduces inventory requirements for the business. The company was carrying some $740 million of excess cash and availability on its revolver as of last Thursday. Sears also continues to pursue strategic alternatives for its real estate portfolio, its Kenmore and DieHard brands and its Sears Home Services and Sear Auto Centers businesses. Sears raised $100 million this month from the sale of three properties as part of its effort to pursue at least $1 billion of asset sales, a target the company announced in January this year. Sears’ rating reflects the company’s sizable operating losses. Although the company continues to take significant steps to improve its liquidity, it is uncertain if the company’s operational strategies will be sufficient to reduce its cash burn to break-even levels. Sears will continue to have sizable assets upon completion of its plans, but its debts are significant, with approximately $4.2 billion of funded debt at the end of the fourth quarter and unfunded pension and retirement obligations of approximately $2 billion. The company also faces problems at its Kmart franchise, in particular, given its meaningful market share erosion. The company announced in December and January plans to close 150 stores (108 Kmart stores and 42 Sears stores) as part of an effort to reduce store space and increase productivity
