Obbligazioni societarie HIGH YIELD e oltre, verso frontiere inesplorate - Vol. 2 (3 lettori)
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Sears pares its unencumbered asset base to boost liquidity as sales slow, a credit negative
Last Wednesday, Sears Holdings Corporation (Caa3 negative) said that it is raising additional financing and negotiating more favorable terms on more than $1 billion in upcoming debt maturities, which could result in a distressed exchange. The action is credit negative because the company’s unencumbered asset base continues to diminish and its operations underperformed competitors in the 2017 holiday season. The plan to secure additional financing and negotiate more favorable debt terms follows a 16%-17% decline in comparable store sales for the holiday season, a sharp contrast to the positive results of many major department stores in November and December. Nonetheless, losses stabilized, with Sears estimating EBITDA at between negative $70 million and negative $10 million relative to negative $61 million for fourth-quarter 2017. In addition, the company raised another $100 million in a new term loan secured by ground leases and intellectual property and has the option to raise an additional $200 million against the pledged collateral. The company also has identified another $200 million in cost savings to pursue this year on top of the $1.25 billion in expense reductions realized this fiscal year. The additional liquidity and cost saving are necessary because Sears continues to generate negative operating cash flow, which we estimate will exceed $1.8 billion this year. Sears also amended $303 million second-lien notes due on 15 October 2018 by increasing the advance rate for inventory to 75% from 65% and deferred the collateral coverage test, which will restart in the second quarter of this year. The actions help avoid triggering a covenant that would require Sears to offer to repurchase the notes at 101% of principal. Sears’ negative rating outlook reflects our view that its business will continue to suffer considerable operating losses that will need to be funded. Although the company has alternative assets to enhance its liquidity, a more comprehensive refinancing will be required this year to avoid a bankruptcy filing
Last Wednesday, Sears Holdings Corporation (Caa3 negative) said that it is raising additional financing and negotiating more favorable terms on more than $1 billion in upcoming debt maturities, which could result in a distressed exchange. The action is credit negative because the company’s unencumbered asset base continues to diminish and its operations underperformed competitors in the 2017 holiday season. The plan to secure additional financing and negotiate more favorable debt terms follows a 16%-17% decline in comparable store sales for the holiday season, a sharp contrast to the positive results of many major department stores in November and December. Nonetheless, losses stabilized, with Sears estimating EBITDA at between negative $70 million and negative $10 million relative to negative $61 million for fourth-quarter 2017. In addition, the company raised another $100 million in a new term loan secured by ground leases and intellectual property and has the option to raise an additional $200 million against the pledged collateral. The company also has identified another $200 million in cost savings to pursue this year on top of the $1.25 billion in expense reductions realized this fiscal year. The additional liquidity and cost saving are necessary because Sears continues to generate negative operating cash flow, which we estimate will exceed $1.8 billion this year. Sears also amended $303 million second-lien notes due on 15 October 2018 by increasing the advance rate for inventory to 75% from 65% and deferred the collateral coverage test, which will restart in the second quarter of this year. The actions help avoid triggering a covenant that would require Sears to offer to repurchase the notes at 101% of principal. Sears’ negative rating outlook reflects our view that its business will continue to suffer considerable operating losses that will need to be funded. Although the company has alternative assets to enhance its liquidity, a more comprehensive refinancing will be required this year to avoid a bankruptcy filing
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