Sears Holdings Corp. has hired M-III Partners LLC to prepare a bankruptcy filing that could come as soon as this week, according to people familiar with the situation, as the cash-strapped company that once dominated American retailing faces a debt payment deadline.
Employees at M-III Partners, a boutique advisory firm, have spent the past few weeks working on the potential filing, the people said. In recent days, M-III staff have been at the retailer’s headquarters in Hoffman Estates, Ill., one person said. Sears continues to discuss other options and could still avert an in-court restructuring, the people added.
Sears, which has been losing money for years, has $134 million in debt due on Monday. Edward Lampert, the hedge-fund manager who is Sears’s chairman, chief executive, largest shareholder and biggest creditor, could rescue the company, as he has done in the past by making the payment.
But Mr. Lampert is pushing for a broader restructuring that would include shaving more than $1 billion from Sears’s $5.5 billion debt load, selling another $1.5 billion of real estate and divesting $1.75 billion of assets, including the Kenmore appliance brand, which he has offered $400 million to buy himself.
The company’s poor financial performance has made it difficult to get support from lenders for the plan, one of the people said. Mr. Lampert hopes to shrink Sears back to profitability, this person said. The company has already closed hundreds of stores in recent years.
Sears has more than $11 billion in cumulative losses since 2011, and its annual sales have dropped nearly 60% in that period to $16.7 billion. Analysts say it needs to raise more than $1 billion a year to stay afloat.
Mr. Lampert has also sought advice from consulting firm AlixPartners; lawyers at Weil, Gotshal & Manges LLP; and investment bank Lazard Ltd., as he tried to keep the company afloat and restructure out of bankruptcy court, the people said.
On Tuesday, Sears added restructuring expert Alan Carr as a director, expanding the six-person board to seven. Mr. Carr runs a restructuring advisory firm and previously worked as a restructuring lawyer at Skadden, Arps, Slate, Meagher & Flom LLP. He has also served on the board of companies—including wireless-networking business LightSquared Inc. and guitar maker Gibson Brands Inc.—that have recently navigated the bankruptcy process.
Once hailed as a genius investor for smart bets he made on AutoZone and AutoNation, Mr. Lampert met his match in Sears, Roebuck & Co. The retailer was struggling before he combined it with Kmart, which he rescued from bankruptcy, to create Sears Holdings Corp. in 2005.
He moved quickly to cut expenses and close unprofitable stores. But the business worsened coming out of the recession, as more purchases were made online and rivals such as Walmart Inc. and Amazon.com Inc. grew stronger. The company wasn’t helped by Mr. Lampert’s unconventional approach to retailing. He resisted investing in store upgrades and, after becoming CEO in 2013, managed the company from Florida, according to people familiar with the situation.
Mr. Lampert wants to restructure Sears’s debt without filing for bankruptcy protection, because he views bankruptcy as risky for retailers, according to a person familiar with his thinking. Retailers often enter bankruptcy with the hope of restructuring but wind up liquidating instead, as was the case this year with Toys “R” Us Inc., this person said.
Mr. Lampert, whose hedge fund ESL Investments Inc. owns a majority of Sears shares, also believes the company can get more value for its assets by selling them while it is a going concern, this person added.
Critics have accused Mr. Lampert of stripping assets from the beleaguered company. The person familiar with Mr. Lampert’s thinking said he has been selling assets to give Sears the cash it needs to stay in business.
While M-III Partners itself is relatively new to the restructuring industry, its founder, Mohsin Meghji, is considered a turnaround expert. The former Arthur Andersen consultant and co-founder of another boutique advisory firm has been working on restructurings for nearly 30 years.
Sears, which still has nearly 900 stores, would be M-III’s biggest assignment. It recently served as chief restructuring officer of Real Alloy, an aluminum recycling company that sought bankruptcy protection in 2017.
Shares of Sears, which traded as high as $144 over a decade ago, closed Tuesday at 59 cents, a sign that investors are bracing for a potential bankruptcy filing or restructuring.
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