Author Topic: SHLDQ - Sears Holdings Corp  (Read 2751737 times)

heth247

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Re: SHLDQ - Sears Holdings Corp
« Reply #9260 on: November 28, 2018, 05:11:49 PM »
what is the CUSIP for the 18 debt? Is there chance that those debt be converted to equity? thanks

GGP had a liquidity problem, not a solvency problem. They had good assets that were making money. Plus, the economy was rebounding from the biggest recession in memory.

Sears doesn't have a profitable base business. They have some nice assets, mostly real estate, but the longer this takes the worse off they are. The inventory gets stale and the fees add up. GGP was making money during BK, so they were actually getting stronger over time. That's important, because basically all the advisors in the process have an incentive for it to take as long as possible.

I have a position in the '18 debt, which trades at less than $0.30. If you think there is potential here that seems like a way better option. For the equity to get anything the debt would need to be dealt with fully, which makes the debt a 3 bagger. But there are a lot of lesser scenarios where the debt works out way better than the equity.

I think if you're considering the equity you should have a reason why the market is pricing the debt so much lower than what you perceive it's fair value to be. Because if the equity is in the money at all there is a multi-billion market inefficiency in the debt.
« Last Edit: November 28, 2018, 05:14:37 PM by heth247 »


TwoCitiesCapital

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Re: SHLDQ - Sears Holdings Corp
« Reply #9261 on: November 28, 2018, 05:49:27 PM »
GGP had a liquidity problem, not a solvency problem. They had good assets that were making money. Plus, the economy was rebounding from the biggest recession in memory.

Sears doesn't have a profitable base business. They have some nice assets, mostly real estate, but the longer this takes the worse off they are. The inventory gets stale and the fees add up. GGP was making money during BK, so they were actually getting stronger over time. That's important, because basically all the advisors in the process have an incentive for it to take as long as possible.

I have a position in the '18 debt, which trades at less than $0.30. If you think there is potential here that seems like a way better option. For the equity to get anything the debt would need to be dealt with fully, which makes the debt a 3 bagger. But there are a lot of lesser scenarios where the debt works out way better than the equity.

I think if you're considering the equity you should have a reason why the market is pricing the debt so much lower than what you perceive it's fair value to be. Because if the equity is in the money at all there is a multi-billion market inefficiency in the debt.

+1

Warren Buffett has said previously that there were times he took on the debt that he wishes he would've taken on the equity - but that is only clear in hindsight.

The debtholders control the bankruptcy process AND get paid before equity. If you've done the leg-work and believe that there's value in the equity, it would be foolish to not play the debt, which is far safer, for the 333% return. Until the market starts doing that and pricing the debt correctly, you can bet that the outcome for equity isn't going to be pretty.

And, if the debt re-prices, there's likely still a very good opportunity to roll into the equity to get the residual as well.

bizaro86

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Re: SHLDQ - Sears Holdings Corp
« Reply #9262 on: November 28, 2018, 07:06:12 PM »
what is the CUSIP for the 18 debt? Is there chance that those debt be converted to equity? thanks

GGP had a liquidity problem, not a solvency problem. They had good assets that were making money. Plus, the economy was rebounding from the biggest recession in memory.

Sears doesn't have a profitable base business. They have some nice assets, mostly real estate, but the longer this takes the worse off they are. The inventory gets stale and the fees add up. GGP was making money during BK, so they were actually getting stronger over time. That's important, because basically all the advisors in the process have an incentive for it to take as long as possible.

I have a position in the '18 debt, which trades at less than $0.30. If you think there is potential here that seems like a way better option. For the equity to get anything the debt would need to be dealt with fully, which makes the debt a 3 bagger. But there are a lot of lesser scenarios where the debt works out way better than the equity.

I think if you're considering the equity you should have a reason why the market is pricing the debt so much lower than what you perceive it's fair value to be. Because if the equity is in the money at all there is a multi-billion market inefficiency in the debt.

I bought the '18s at IB with IBCID93564153. They are bid $26.5 and ask $27. They could be converted to equity in a restructured SHLD as part of the chapter 11 process, but it would be equity in a new go-forward entity, not the pre-bankruptcy equity.

BeerBBQ

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Re: SHLDQ - Sears Holdings Corp
« Reply #9263 on: November 29, 2018, 11:32:24 AM »
What makes you think that debt will be converted and not left behind?

bizaro86

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Re: SHLDQ - Sears Holdings Corp
« Reply #9264 on: November 29, 2018, 12:16:16 PM »
What makes you think that debt will be converted and not left behind?

Are you asking me? I don't particularly think it will be converted. I think they'll liquidate the vast majority of the company, and maybe sell a rump business to ESL on a credit bid. I think as the process continues the 1st Lien will get paid out, and the 2nd lien will get some payout (up to the amount of security left). Then I think the 2nd and the SRAC will split the remaining funds.

It's also possible that the 2nd/SRAC end up with equity in a new rump sears.

Or are you talking about the guarantor/non-guarantor stuff? Because imo that is basically all nonsense. The holding company filed, and all of the subs equity is owned by the holding company. The subs (including non-guarantor) are assets available to satisfy its debt to the extent they aren't pledged to someone else (mortgagees, pensioners, etc).

BeerBBQ

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Re: SHLDQ - Sears Holdings Corp
« Reply #9265 on: November 30, 2018, 05:41:19 AM »
On a liquidation of 2nd, what do you think the recovery will be and how do you get there?


Gregmal

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Re: SHLDQ - Sears Holdings Corp
« Reply #9267 on: December 06, 2018, 07:23:51 AM »

bizaro86

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Re: SHLDQ - Sears Holdings Corp
« Reply #9268 on: December 06, 2018, 11:58:28 AM »
I really don't like that bid. I also don't see why shop your way points holders should  get par when the 2nd lien is going to take a big haircut...

Liberty

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Re: SHLDQ - Sears Holdings Corp
« Reply #9269 on: January 08, 2019, 06:12:22 AM »
I guess this will end this thread:

https://www.cnbc.com/2019/01/06/sears-rejects-eddie-lamperts-bid-to-save-company-will-liquidate-.html

I'm sure there's a lot to learn by re-reading (or at least skimming) this thread from the start. It's a nice case study for a complex, controversial company that in the end didn't work out. Reminds me of the Buffett line about the reputation of the manager and the reputation of the business...
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