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Obbligazioni societarie HIGH YIELD e oltre, verso frontiere inesplorate - Vol. 2 (4 lettori)
- Creatore Discussione gionmorg
- Data di Inizio
zoroaster
Forumer attivo
grazie, con il dollaro che va giù e dovendo investire è bene tenere presente tutte le possibilità
waltermasoni
Caribbean Trader
Sell
ASTALDI CONVERTIBILE 4.875% 2024 XS1634544248
71,20
Rimango con ultimo lotto
ASTALDI CONVERTIBILE 4.875% 2024 XS1634544248
71,20
Rimango con ultimo lotto
IL MARATONETA
Forumer storico
A proposito di casinò, ho sentito che quello di Campione è in gravi difficoltà. Sembra che anche in questo settore, le giocate on-line abbiano fatto diminuire notevolmente le persone che frequentano.
angy2008
Forumer storico
era in gravi difficoltà .. ora è fallito. Oltre all'online ha anche handicap di posizione scomoda e concorrenza dei casinò svizzeri. Ci aveva provato anche un nostro sangue blu a rianimarlo con piacevoli abbinamenti ma era stato sanzionato.
tu si che sei fortunato
Fitch Downgrades Sears Holdings to 'C' on Distressed Debt Exchange Announcement
23 JAN 2018 2:00 PM ET
Fitch Ratings-New York-23 January 2018: Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDRs) on Sears Holdings Corporation, Sears Roebuck Acceptance Corp. (SRAC) and Kmart Corporation to 'C' from 'CC' following the company's announcement that it has commenced an exchange of various tranches of debt held at these entities. Fitch also downgraded the second-lien secured notes of Holdings to 'CC'/'RR3' from 'CCC+'/'RR1'.
The Jan. 23 announcement follows a release from early January in which Sears disclosed that it was in discussions with certain lenders to amend the terms on potentially more than $1 billion of its non-first-lien debt, including significantly reducing cash interest expense and extending the maturity of some of that debt. The exchange consists of the following proposed actions: 1) 8.000% $625 million senior unsecured notes due December 2019 to be exchanged for 8.000% senior unsecured convertible pay in kind (PIK) notes of the same amount and maturity, 2) 6.625% $303 million second-lien secured notes due October 2018 to be exchanged for 6.625% senior second-lien secured convertible PIK notes due 2019 of the same amount, 3) an amendment to the $300 million second-lien term loan (not rated and held by ESL and affiliates) due 2020 that would allow for PIK interest and for the loan to be convertible to common stock, and 4) approximately $95 million of senior unsecured SRAC notes bearing interest between 6.500% and 7.500% due 2027 to 2043 to be exchanged for new 7.000% unsecured notes maturing March 2028, that would allow for PIK interest at a rate of 12.000%.
Fitch views these exchanges as a distressed debt exchange (DDE), given extension of maturity date and the change in interest from cash-pay basis to PIK, and assumes that the collateral base for the secured debt will remain unchanged post the exchange. Per Fitch's criteria, we would downgrade the IDRs of the affected entities to Restricted Default (RD) upon the completion of the exchange. The IDR may subsequently be upgraded reflecting the post-DDE credit profile.
While the proposed exchanges and amendments are expected to result in annual cash interest savings of just over $100 million, this transaction does not materially change Fitch's expectations for annual cash burn, which would go to $1.2 billion annually from previously projected $1.3 billion in 2018.
A full list of ratings actions follows at the end of this release.
KEY RATING DRIVERS
Negative $600 Million-$700 Million EBITDA in 2017/18: Fitch expects Sears' comparable store sales (comps) to be around negative mid-teens in 2017 and negative 10% in 2018. Overall top-line is expected to decline by 25% in 2017 and in the mid-teens in 2018 given significant store closures. Consequently Fitch expects EBITDA to be negative $600 million-$700 million in 2017/2018, compared with a loss of over $800 million in 2015/2016.
Significant Cash Burn: Sears' interest expense, capex and pension plan contributions are expected to total $800 million in 2017 and 2018. Fitch expects cash burn (cash flow from operations [CFFO] after capex and pension contributions) of $1.3 billion annually, assuming $250 million in annual working capital benefit from store closings and fewer inventory buys, prior to the proposed debt exchange which would result in approximately $100 million in cash interest savings in 2018. The estimated $300 million in annual cash pension contributions could be addressed through using proceeds from a potential new credit facility backed by ring-fenced assets.
Prior to the exchange, Sears had significant debt maturities over the next 12 months. This includes $303 million senior secured second-lien notes due October 2018 and a $400 million senior secured first-lien term loan due January 2019 that is secured by inventory and receivables. In addition the company has $461 million real estate secured debt and $413 second lien commitment line of credit loans held by ESL Investments, Inc. due in 2018. As part of the exchange, the company would push the maturity of the $303 million senior secured second-lien notes to 2019.
Potential Sources of Liquidity: At the end of 2016, Sears owned 67 Kmart stores, 293 Sears stores and 12 distribution centers (DCs). Fitch estimates Sears currently has approximately 120 unencumbered properties consisting primarily of Kmart discount and Sears full-line mall stores and a few DCs. This excludes the 138 ring-fenced properties and another 87 properties that secure the real estate loans, as well as 25 stores that were sold during 2017. The Kenmore and DieHard brands, and Sears Home Services and Sears Auto Centers businesses could also be potential sources of liquidity. The ability of Sears to monetize or use Kenmore and DieHard to secure debt will depend on its negotiations with the Pension Benefit Guaranty Corp, given that these assets are subject to a ring-fence arrangement with the PBGC.
In January 2018, Sears announced a series of financial transactions to raise an incremental $300 million in new liquidity. The company has already received a $100 million term loan, supported by ground leases and select intellectual property. Under certain circumstances and with the consent of the lender, the company will be entitled to raise an additional $200 million against the same collateral.
Concurrently, Sears Holdings amended the borrowing base definition in the indenture relating to its second-lien notes, maturing Oct. 15, 2018, to change the advance rate for inventory to 75% from 65%. The amendment also defers the collateral coverage test for purposes of the repurchase-offer covenant in the indenture and restarts it with the second quarter of 2018 (2Q18; such that no collateral coverage event can occur until the end of 3Q18). The company has also made corresponding amendments to its second-lien credit agreement. There is risk, however, that this could lead to higher borrowings under the $1.5 billion credit facility, further reducing recovery prospects for outstanding second-lien debt.
Sears is continuing to negotiate a secured credit facility, consisting of an approximately $407 million (net of associated costs) first-lien tranche and a second-lien tranche of up to $200 million, secured by the 138 properties currently subject to a ring-fence arrangement with the PBGC. The 138 properties have an aggregate appraised value of approximately $985 million. The company intends to use the net proceeds from the secured credit facility to fund the payment of approximately $407 million into the Sears pension plans and for general corporate purposes. Following funding of the pension contribution, Holdings will be relieved of the obligation to make further contributions to the pension plans for approximately two years (other than a $20 million supplemental payment due in 2Q18). Holdings expects to repay the secured credit facility over time with the proceeds from sales of the underlying properties.
However, should the company's efforts to complete these transactions not be fully successful, the board will consider all other options to maximize the value of its assets.
Shrinking Assets Fund Operations: Sears injected almost $12 billion in liquidity in 2012-2016 to fund ongoing operations given material declines in internally generated cash flow. This includes $5.6 billion from real estate-related transactions, including loans secured by properties, with the remainder from debt issuance and working-capital reductions. In 2017 (through December), the company raised almost $2 billion through asset sales, sales of Craftsman, and debt issuance. Conversely, the company also paid down $1.3 billion of debt during the year.
Restructuring Risk: On top of the DDE transactions discussed above, Fitch believes restructuring risk for Sears remains high over the next 12-24 months given the significant cash burn and reduced sources of liquidity.
DERIVATION SUMMARY
Sears' 'C' rating reflects multi-year top line market share and EBITDA declines that have led to concerns regarding long-term competitive viability. The company faces significant restructuring risk given the high cash burn since 2013 which has necessitated significant liquidity infusion via asset sales or secured debt.
Since Kmart and Sears, Roebuck and Co. merged under the newly created entity Sears Holdings Corporation in March 2005, the company has been underperforming its largest retail peers within the department store, discount and big-box specialty retail segments. The combined domestic entity lost $24.8 billion, or 47% of its 2006 domestic revenue base of $47 billion, excluding Orchard Hardware, through 2016. Fitch expects overall top line to decline by another 25% in 2017 and mid-teens in 2018, with 2018 revenue projected at $14 billion. The top-line weakness reflects years of underinvestment in stores, competitive pressures, inconsistent merchandising execution and the lack of a long-term retail strategy.
While the hardlines and discount channel has been relatively resilient with growth in retailers such as Walmart, Target, Home Depot, Lowe's and Best Buy, department store industry sales have declined almost 30% over the last 10 years. The decline in Sears' sales have been more pronounced compared to investment grade-rated retailers such as Macy's, Kohl's and Nordstrom, where sales have been flat to up during this time frame. J.C. Penney (B+) sales are down significantly although EBITDA has improved to positive $1 billion in 2016/2017.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Our Rating Case for the Issuer
--Overall top line to decline 25% in 2017 on negative mid-teens comps and expected store closures; 2018 revenues are expected to be down by mid-teens assuming 10% comps decline and additional store closures.
--EBITDA to be approximately negative $600 million-$700 million in 2017/2018.
--Cash burn to be approximately $1.3 billion in 2017/ 2018 based on $800 million total in interest expense, capex, and cash pension payments. Fitch assumes $250 million in annual working-capital benefit from store closings and fewer inventory buys. The estimated pension contributions could be addressed through using proceeds from a potential new credit facility backed by ring-fenced assets.
--Prior to the exchange, Sears had significant debt maturities over the next 12 months. This includes $303 million senior secured second-lien notes due October 2018 and a $400 million senior secured first-lien term loan due January 2019 that is secured by inventory and receivables. In addition the company has $461 million real estate secured debt and $413 second lien commitment line of credit loans held by ESL Investments, Inc. due in 2018. As part of the exchange, the company would push the maturity of the $303 million senior secured second-lien notes to 2019.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to Positive Rating Action
Sustained improvement in comps and EBITDA to a level where the company is covering its fixed obligations. Note this is not anticipated at this time.
Developments That May, Individually or Collectively, Lead to Negative Rating Action
If Sears is unable to inject the liquidity needed to fund ongoing operations.
LIQUIDITY
Sears had total liquidity of $239 million as of Oct. 28, 2017, consisting of $200 million cash and $39 million available under its credit facility. The $39 million available on the $1.5 billion domestic credit facility reflected $424 million of borrowings and $381 million of letters of credit outstanding, the effect of the springing fixed-charge coverage ratio covenant of $150 million, and another $506 million that was not available due to the borrowing base limitation. Fitch assumes $1.9 billion of first-lien term loans, the second-lien notes, the second-lien term loan and uncommitted lines of credit loans backed by ABL collateral are taken into account when calculating the borrowing base.
Recovery Considerations for Issue-Specific Ratings
Fitch's recovery analysis assumes a liquidation value under a distressed scenario of approximately $4.2 billion on domestic inventory; receivables; and property, plant and equipment. Fitch has applied an 80% advance rate on receivables and a 70% advance rate against 3Q inventory as a proxy for a net orderly liquidation value of the assets. Fitch also assumes that owned stores as discussed below would be valued at $1.5 billion. A going-concern approach to enterprise value is not utilized, as Fitch does not believe that Sears can reverse its significant operating declines.
The $1.5 billion domestic senior secured credit facility (SRAC and Kmart Holding Corporation are the borrowers) is rated 'CCC+'/'RR1', indicating outstanding (90%-100%) recovery prospects in a distressed scenario. The facility is secured primarily by inventory and pharmacy and credit card receivables. Fitch assumes the amount drawn is a function of availability using a borrowing base calculation, adjusted for the effect of the springing fixed-charge coverage ratio covenant and the borrowing base limitation posed by debt secured by the same assets. Holdings provides a downstream guarantee to both SRAC and Kmart, and there are cross-guarantees between SRAC and Kmart. The facility is also guaranteed by direct and indirect wholly owned domestic subsidiaries of Holdings, which own assets that collateralize the facility.
The $400 million first-lien senior secured term loan due January 2019 and $557 million first-lien secured term loan due July 2020 are also rated 'CCC+'/'RR1', as they are secured by a first lien on the same collateral and guaranteed by the same subsidiaries of the company that guarantee the revolving facility.
The remaining $303 million second-lien notes due October 2018 at Holdings, which have a second lien on the same collateral package as the credit facility and first-lien term loans, have been downgraded to 'CC'/'RR3' from 'CCC+'/'RR1'.
These notes rank parri passu with the $300 million second-lien term loan facility due July 2020 and the $413 million second-lien uncommitted line of credit loans provided by ESL and affiliates. The downgrade reflects the significant and ongoing reduction in the underlying collateral - primarily inventory - as the company pulls back on purchases given materially negative comps and significant store closings.
The second-lien notes contain provisions that require Holdings to maintain minimum collateral coverage for total debt secured by the collateral securing the notes; failing which, Holdings has to offer to buy notes at 101% in an amount sufficient to cure the deficiency. Fitch notes that Sears recently got an amendment that defers the collateral coverage test and restarts it with 2Q18. Fitch assumes that the collateral base for the second lien notes will remain unchanged post the exchange.
The $197 million senior unsecured notes at SRAC and the 8% $625 million unsecured notes due 2019 at Holdings are rated 'C'/'RR6', given poor recovery prospects (0%-10%).
As of Jan. 28, 2017, the company owned 67 Kmart stores, 293 Sears stores and 12 DCs. Fitch estimates Sears still has approximately 120 unencumbered properties consisting primarily of Kmart discount and Sears full-line mall stores and a few DCs. This excludes the 138 ring-fenced properties and another 87 properties that secure the real estate loans, as well as 25 stores that were sold during 2017. For recovery purposes, Fitch excludes the ring-fenced properties and has valued the 209 total owned properties at $7 million per property, for a total of $1.5 billion, in line with the valuation provided for the 138 ring-fenced properties but lower than the $10 million per store under the Seritage transaction. While the current real estate loans amount to just over $800 million, Fitch assumes a material portion of the unencumbered real estate will be used to raise additional liquidity (via asset sales or securing additional debt) to fund operations and as such the prospects for the unsecured debt-holders remain poor.
FULL LIST OF RATING ACTIONS
Fitch has downgraded the following ratings:
Sears Holdings Corporation
--Long-Term IDR to 'C' from 'CC';
--$303 million second-lien secured notes to 'CC'/'RR3' from 'CCC+'/'RR1'.
Sears Roebuck Acceptance Corp.
--Long-Term IDR to 'C' from 'CC'.
Kmart Corporation
--Long-Term IDR to 'C' from 'CC'.
Fitch has affirmed the following ratings:
Sears Holdings Corporation
--$625 million unsecured notes at 'C/RR6'.
Sears, Roebuck and Co.
--Long-Term IDR at 'CC';
Sears Roebuck Acceptance Corp.
--Short-Term IDR at 'C';
--Commercial paper at 'C';
--$1.5 billion secured bank facility at 'CCC+/RR1' (as co-borrower);
--$957 million first-lien term loans at 'CCC+/RR1' (as co-borrower);
--Senior unsecured notes at 'C'/'RR6'.
Kmart Holding Corporation
--Long-Term IDR at 'CC'.
Kmart Corporation
--$1.5 billion secured bank facility at 'CCC+'/'RR1' (as co-borrower);
--$957 million first-lien term loans at 'CCC+'/'RR1' (as co-borrower).
23 JAN 2018 2:00 PM ET
Fitch Ratings-New York-23 January 2018: Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDRs) on Sears Holdings Corporation, Sears Roebuck Acceptance Corp. (SRAC) and Kmart Corporation to 'C' from 'CC' following the company's announcement that it has commenced an exchange of various tranches of debt held at these entities. Fitch also downgraded the second-lien secured notes of Holdings to 'CC'/'RR3' from 'CCC+'/'RR1'.
The Jan. 23 announcement follows a release from early January in which Sears disclosed that it was in discussions with certain lenders to amend the terms on potentially more than $1 billion of its non-first-lien debt, including significantly reducing cash interest expense and extending the maturity of some of that debt. The exchange consists of the following proposed actions: 1) 8.000% $625 million senior unsecured notes due December 2019 to be exchanged for 8.000% senior unsecured convertible pay in kind (PIK) notes of the same amount and maturity, 2) 6.625% $303 million second-lien secured notes due October 2018 to be exchanged for 6.625% senior second-lien secured convertible PIK notes due 2019 of the same amount, 3) an amendment to the $300 million second-lien term loan (not rated and held by ESL and affiliates) due 2020 that would allow for PIK interest and for the loan to be convertible to common stock, and 4) approximately $95 million of senior unsecured SRAC notes bearing interest between 6.500% and 7.500% due 2027 to 2043 to be exchanged for new 7.000% unsecured notes maturing March 2028, that would allow for PIK interest at a rate of 12.000%.
Fitch views these exchanges as a distressed debt exchange (DDE), given extension of maturity date and the change in interest from cash-pay basis to PIK, and assumes that the collateral base for the secured debt will remain unchanged post the exchange. Per Fitch's criteria, we would downgrade the IDRs of the affected entities to Restricted Default (RD) upon the completion of the exchange. The IDR may subsequently be upgraded reflecting the post-DDE credit profile.
While the proposed exchanges and amendments are expected to result in annual cash interest savings of just over $100 million, this transaction does not materially change Fitch's expectations for annual cash burn, which would go to $1.2 billion annually from previously projected $1.3 billion in 2018.
A full list of ratings actions follows at the end of this release.
KEY RATING DRIVERS
Negative $600 Million-$700 Million EBITDA in 2017/18: Fitch expects Sears' comparable store sales (comps) to be around negative mid-teens in 2017 and negative 10% in 2018. Overall top-line is expected to decline by 25% in 2017 and in the mid-teens in 2018 given significant store closures. Consequently Fitch expects EBITDA to be negative $600 million-$700 million in 2017/2018, compared with a loss of over $800 million in 2015/2016.
Significant Cash Burn: Sears' interest expense, capex and pension plan contributions are expected to total $800 million in 2017 and 2018. Fitch expects cash burn (cash flow from operations [CFFO] after capex and pension contributions) of $1.3 billion annually, assuming $250 million in annual working capital benefit from store closings and fewer inventory buys, prior to the proposed debt exchange which would result in approximately $100 million in cash interest savings in 2018. The estimated $300 million in annual cash pension contributions could be addressed through using proceeds from a potential new credit facility backed by ring-fenced assets.
Prior to the exchange, Sears had significant debt maturities over the next 12 months. This includes $303 million senior secured second-lien notes due October 2018 and a $400 million senior secured first-lien term loan due January 2019 that is secured by inventory and receivables. In addition the company has $461 million real estate secured debt and $413 second lien commitment line of credit loans held by ESL Investments, Inc. due in 2018. As part of the exchange, the company would push the maturity of the $303 million senior secured second-lien notes to 2019.
Potential Sources of Liquidity: At the end of 2016, Sears owned 67 Kmart stores, 293 Sears stores and 12 distribution centers (DCs). Fitch estimates Sears currently has approximately 120 unencumbered properties consisting primarily of Kmart discount and Sears full-line mall stores and a few DCs. This excludes the 138 ring-fenced properties and another 87 properties that secure the real estate loans, as well as 25 stores that were sold during 2017. The Kenmore and DieHard brands, and Sears Home Services and Sears Auto Centers businesses could also be potential sources of liquidity. The ability of Sears to monetize or use Kenmore and DieHard to secure debt will depend on its negotiations with the Pension Benefit Guaranty Corp, given that these assets are subject to a ring-fence arrangement with the PBGC.
In January 2018, Sears announced a series of financial transactions to raise an incremental $300 million in new liquidity. The company has already received a $100 million term loan, supported by ground leases and select intellectual property. Under certain circumstances and with the consent of the lender, the company will be entitled to raise an additional $200 million against the same collateral.
Concurrently, Sears Holdings amended the borrowing base definition in the indenture relating to its second-lien notes, maturing Oct. 15, 2018, to change the advance rate for inventory to 75% from 65%. The amendment also defers the collateral coverage test for purposes of the repurchase-offer covenant in the indenture and restarts it with the second quarter of 2018 (2Q18; such that no collateral coverage event can occur until the end of 3Q18). The company has also made corresponding amendments to its second-lien credit agreement. There is risk, however, that this could lead to higher borrowings under the $1.5 billion credit facility, further reducing recovery prospects for outstanding second-lien debt.
Sears is continuing to negotiate a secured credit facility, consisting of an approximately $407 million (net of associated costs) first-lien tranche and a second-lien tranche of up to $200 million, secured by the 138 properties currently subject to a ring-fence arrangement with the PBGC. The 138 properties have an aggregate appraised value of approximately $985 million. The company intends to use the net proceeds from the secured credit facility to fund the payment of approximately $407 million into the Sears pension plans and for general corporate purposes. Following funding of the pension contribution, Holdings will be relieved of the obligation to make further contributions to the pension plans for approximately two years (other than a $20 million supplemental payment due in 2Q18). Holdings expects to repay the secured credit facility over time with the proceeds from sales of the underlying properties.
However, should the company's efforts to complete these transactions not be fully successful, the board will consider all other options to maximize the value of its assets.
Shrinking Assets Fund Operations: Sears injected almost $12 billion in liquidity in 2012-2016 to fund ongoing operations given material declines in internally generated cash flow. This includes $5.6 billion from real estate-related transactions, including loans secured by properties, with the remainder from debt issuance and working-capital reductions. In 2017 (through December), the company raised almost $2 billion through asset sales, sales of Craftsman, and debt issuance. Conversely, the company also paid down $1.3 billion of debt during the year.
Restructuring Risk: On top of the DDE transactions discussed above, Fitch believes restructuring risk for Sears remains high over the next 12-24 months given the significant cash burn and reduced sources of liquidity.
DERIVATION SUMMARY
Sears' 'C' rating reflects multi-year top line market share and EBITDA declines that have led to concerns regarding long-term competitive viability. The company faces significant restructuring risk given the high cash burn since 2013 which has necessitated significant liquidity infusion via asset sales or secured debt.
Since Kmart and Sears, Roebuck and Co. merged under the newly created entity Sears Holdings Corporation in March 2005, the company has been underperforming its largest retail peers within the department store, discount and big-box specialty retail segments. The combined domestic entity lost $24.8 billion, or 47% of its 2006 domestic revenue base of $47 billion, excluding Orchard Hardware, through 2016. Fitch expects overall top line to decline by another 25% in 2017 and mid-teens in 2018, with 2018 revenue projected at $14 billion. The top-line weakness reflects years of underinvestment in stores, competitive pressures, inconsistent merchandising execution and the lack of a long-term retail strategy.
While the hardlines and discount channel has been relatively resilient with growth in retailers such as Walmart, Target, Home Depot, Lowe's and Best Buy, department store industry sales have declined almost 30% over the last 10 years. The decline in Sears' sales have been more pronounced compared to investment grade-rated retailers such as Macy's, Kohl's and Nordstrom, where sales have been flat to up during this time frame. J.C. Penney (B+) sales are down significantly although EBITDA has improved to positive $1 billion in 2016/2017.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Our Rating Case for the Issuer
--Overall top line to decline 25% in 2017 on negative mid-teens comps and expected store closures; 2018 revenues are expected to be down by mid-teens assuming 10% comps decline and additional store closures.
--EBITDA to be approximately negative $600 million-$700 million in 2017/2018.
--Cash burn to be approximately $1.3 billion in 2017/ 2018 based on $800 million total in interest expense, capex, and cash pension payments. Fitch assumes $250 million in annual working-capital benefit from store closings and fewer inventory buys. The estimated pension contributions could be addressed through using proceeds from a potential new credit facility backed by ring-fenced assets.
--Prior to the exchange, Sears had significant debt maturities over the next 12 months. This includes $303 million senior secured second-lien notes due October 2018 and a $400 million senior secured first-lien term loan due January 2019 that is secured by inventory and receivables. In addition the company has $461 million real estate secured debt and $413 second lien commitment line of credit loans held by ESL Investments, Inc. due in 2018. As part of the exchange, the company would push the maturity of the $303 million senior secured second-lien notes to 2019.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to Positive Rating Action
Sustained improvement in comps and EBITDA to a level where the company is covering its fixed obligations. Note this is not anticipated at this time.
Developments That May, Individually or Collectively, Lead to Negative Rating Action
If Sears is unable to inject the liquidity needed to fund ongoing operations.
LIQUIDITY
Sears had total liquidity of $239 million as of Oct. 28, 2017, consisting of $200 million cash and $39 million available under its credit facility. The $39 million available on the $1.5 billion domestic credit facility reflected $424 million of borrowings and $381 million of letters of credit outstanding, the effect of the springing fixed-charge coverage ratio covenant of $150 million, and another $506 million that was not available due to the borrowing base limitation. Fitch assumes $1.9 billion of first-lien term loans, the second-lien notes, the second-lien term loan and uncommitted lines of credit loans backed by ABL collateral are taken into account when calculating the borrowing base.
Recovery Considerations for Issue-Specific Ratings
Fitch's recovery analysis assumes a liquidation value under a distressed scenario of approximately $4.2 billion on domestic inventory; receivables; and property, plant and equipment. Fitch has applied an 80% advance rate on receivables and a 70% advance rate against 3Q inventory as a proxy for a net orderly liquidation value of the assets. Fitch also assumes that owned stores as discussed below would be valued at $1.5 billion. A going-concern approach to enterprise value is not utilized, as Fitch does not believe that Sears can reverse its significant operating declines.
The $1.5 billion domestic senior secured credit facility (SRAC and Kmart Holding Corporation are the borrowers) is rated 'CCC+'/'RR1', indicating outstanding (90%-100%) recovery prospects in a distressed scenario. The facility is secured primarily by inventory and pharmacy and credit card receivables. Fitch assumes the amount drawn is a function of availability using a borrowing base calculation, adjusted for the effect of the springing fixed-charge coverage ratio covenant and the borrowing base limitation posed by debt secured by the same assets. Holdings provides a downstream guarantee to both SRAC and Kmart, and there are cross-guarantees between SRAC and Kmart. The facility is also guaranteed by direct and indirect wholly owned domestic subsidiaries of Holdings, which own assets that collateralize the facility.
The $400 million first-lien senior secured term loan due January 2019 and $557 million first-lien secured term loan due July 2020 are also rated 'CCC+'/'RR1', as they are secured by a first lien on the same collateral and guaranteed by the same subsidiaries of the company that guarantee the revolving facility.
The remaining $303 million second-lien notes due October 2018 at Holdings, which have a second lien on the same collateral package as the credit facility and first-lien term loans, have been downgraded to 'CC'/'RR3' from 'CCC+'/'RR1'.
These notes rank parri passu with the $300 million second-lien term loan facility due July 2020 and the $413 million second-lien uncommitted line of credit loans provided by ESL and affiliates. The downgrade reflects the significant and ongoing reduction in the underlying collateral - primarily inventory - as the company pulls back on purchases given materially negative comps and significant store closings.
The second-lien notes contain provisions that require Holdings to maintain minimum collateral coverage for total debt secured by the collateral securing the notes; failing which, Holdings has to offer to buy notes at 101% in an amount sufficient to cure the deficiency. Fitch notes that Sears recently got an amendment that defers the collateral coverage test and restarts it with 2Q18. Fitch assumes that the collateral base for the second lien notes will remain unchanged post the exchange.
The $197 million senior unsecured notes at SRAC and the 8% $625 million unsecured notes due 2019 at Holdings are rated 'C'/'RR6', given poor recovery prospects (0%-10%).
As of Jan. 28, 2017, the company owned 67 Kmart stores, 293 Sears stores and 12 DCs. Fitch estimates Sears still has approximately 120 unencumbered properties consisting primarily of Kmart discount and Sears full-line mall stores and a few DCs. This excludes the 138 ring-fenced properties and another 87 properties that secure the real estate loans, as well as 25 stores that were sold during 2017. For recovery purposes, Fitch excludes the ring-fenced properties and has valued the 209 total owned properties at $7 million per property, for a total of $1.5 billion, in line with the valuation provided for the 138 ring-fenced properties but lower than the $10 million per store under the Seritage transaction. While the current real estate loans amount to just over $800 million, Fitch assumes a material portion of the unencumbered real estate will be used to raise additional liquidity (via asset sales or securing additional debt) to fund operations and as such the prospects for the unsecured debt-holders remain poor.
FULL LIST OF RATING ACTIONS
Fitch has downgraded the following ratings:
Sears Holdings Corporation
--Long-Term IDR to 'C' from 'CC';
--$303 million second-lien secured notes to 'CC'/'RR3' from 'CCC+'/'RR1'.
Sears Roebuck Acceptance Corp.
--Long-Term IDR to 'C' from 'CC'.
Kmart Corporation
--Long-Term IDR to 'C' from 'CC'.
Fitch has affirmed the following ratings:
Sears Holdings Corporation
--$625 million unsecured notes at 'C/RR6'.
Sears, Roebuck and Co.
--Long-Term IDR at 'CC';
Sears Roebuck Acceptance Corp.
--Short-Term IDR at 'C';
--Commercial paper at 'C';
--$1.5 billion secured bank facility at 'CCC+/RR1' (as co-borrower);
--$957 million first-lien term loans at 'CCC+/RR1' (as co-borrower);
--Senior unsecured notes at 'C'/'RR6'.
Kmart Holding Corporation
--Long-Term IDR at 'CC'.
Kmart Corporation
--$1.5 billion secured bank facility at 'CCC+'/'RR1' (as co-borrower);
--$957 million first-lien term loans at 'CCC+'/'RR1' (as co-borrower).
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