Sears Holdings gained some breathing room amid the critical year-end shopping season with a pair of deals the struggling Hoffman Estates-based retailer said will give it more financial flexibility.
Sears paid down $325 million on a loan originally due midway through next year and entered into an agreement that gives it an extension to repay the remaining $400 million due, the company said Tuesday. That loan now matures in January 2019 but could be extended another six months.
The company also said it plans to get a new credit facility worth about $600 million, linked to a previously announced deal struck last month with the Pension Benefit Guaranty Corp., a federal agency that guarantees individuals’ pension plans.
The agreement allows Sears to sell up to 138 properties to finance a $407 million contribution to its pension plans. The company said it expects to use those properties to secure the credit, which it will repay over time by selling the real estate.
“The extension of the Term Loan improves our short-term debt maturity profile, while the credit facility associated with the PBGC agreement will support our continued commitment to the Company’s pension plans while enhancing our financial flexibility,” Rob Riecker, Sears Holdings’ chief financial officer, said in a news release. “Looking ahead, we continue to explore alternatives with respect to our debt maturities to meaningfully reduce cash interest payments and provide the Company greater flexibility.”
Before the company’s Tuesday announcement, Sears had $1.4 billion in debt due in 2018, according to a Fitch Ratings report from earlier this month, which included Sears on a list of companies with a “material likelihood of defaulting.”
The ratings agency estimated Sears needs $1.75 billion to $2 billion each year to fund operations. Sears has sought cash infusions from the sale of assets, including stores and its Craftsman tools brand, and loans from CEO Edward Lampert and affiliates of his hedge fund. But in the past couple of years, the retailer has not had such significant debts to address as well, David Silverman, a senior director at Fitch covering retail companies, said prior to Sears’ Tuesday announcement.
Sears could not immediately comment on how much debt remains due in 2018.