Author Topic: SHLDQ - Sears Holdings Corp  (Read 2930664 times)

BeerBBQ

  • Full Member
  • ***
  • Posts: 136
Re: SHLDQ - Sears Holdings Corp
« Reply #9040 on: October 24, 2017, 12:37:21 PM »
  SHLD common unchanged basically so the way to play SHLD filing (which is more likely now)

Why do you think a filing is more likely now?


Picasso

  • Hero Member
  • *****
  • Posts: 2025
Re: SHLDQ - Sears Holdings Corp
« Reply #9041 on: October 24, 2017, 01:24:53 PM »
From earlier, I said:

Quote
I think the debt is the bigger class here and you need to have a pretty strong feel for it if you are going to be playing the options / stock.

You have 3 (basically) publicly tradable classes.

'17 SRAC
'18 Secured HoldCo
'19 Unsecured HoldCo
And '28 - '43 SRAC

SRAC is rated above HoldCo debt, and Secured HoldCo is above SRAC.  All debt is 1 rating apart...

Long term SRAC trading at 40% of par, near term issues trading from 87-95% of par (through '19).

Given the above information, the market is saying *strenuously* that a filing won't happen soon (through '19).  If it did, you could create a crazy trade -- short front end debt and long long term debt which would experience extreme pricing convergence upon a filing.... amazingly, this trade would be massively positive carry as well.

I hear you on the puts and doing what makes sense and picking your spots; but given the capital structure pricing today it's a very very inefficient way (my opinion) to express your view which while common on this board appears to be very divergent from debt securities' market participants.

Clearly the pricing could be due to yield / liquidity, or just plain insanity... but I think it's worth Sears bears doing a lot of work on the debt if you think a filing is imminent.  I may short the '19's just to hedge out my much higher yield SRAC position (given SSRAP structure, that would be a seriously dirty hedge though).

Just some thoughts.  Good luck (actually, I take that back...)

Just to flash back.  The trade I proposed (long >'28 SRAC, short '19 HoldCo) has strongly converged.  SRAC up 10% (now at $45) and '19 HoldCo down ~30% (now at $60).  SHLD common unchanged basically so the way to play SHLD filing (which is more likely now) was not puts (at least in this reality).

Not picking on Walt who's view was clearly articulated, just thought it was an interesting follow up given the bizarre nature of the Sears discussions and business over time. :)

I think the issue with this trade (at current levels) is that the quicker SHLD files, the more value is left for those '19 HoldCo's and potentially well in excess of par value depending on how the restructuring is handled.  There's kind of a narrow path where the '19's are impaired while the senior SRAC's are fine.  They'd need to wipe out most of the remaining net assets, pay out the SRAC's, and file before the '19 maturity allowing ESL to prime Berkowitz (who also happens to be a large holder of what is arguably the fulcrum security alongside ESL). 

A SHLD restructuring will look like anything but a normal restructuring and the idea of owning one liability versus another based on seniority might not be the right way of looking at this.  Although I imagine the initial knee-jerk reaction to a filing would not be great for the '19 HoldCo's.  Full disclosure: buying some of the '19 notes for various reasons.

sampr01

  • Full Member
  • ***
  • Posts: 224
Re: SHLDQ - Sears Holdings Corp
« Reply #9042 on: October 24, 2017, 02:01:25 PM »
Hi Picasso,

Why can't you just buy SRAC instead of 19's and they are much cheaper (some one liquidating 19's today and may be a good reason to buy now and sell couple of months later). Any other reason than BK timing?.

Thanks
 ;D



From earlier, I said:

Quote
I think the debt is the bigger class here and you need to have a pretty strong feel for it if you are going to be playing the options / stock.

You have 3 (basically) publicly tradable classes.

'17 SRAC
'18 Secured HoldCo
'19 Unsecured HoldCo
And '28 - '43 SRAC

SRAC is rated above HoldCo debt, and Secured HoldCo is above SRAC.  All debt is 1 rating apart...

Long term SRAC trading at 40% of par, near term issues trading from 87-95% of par (through '19).

Given the above information, the market is saying *strenuously* that a filing won't happen soon (through '19).  If it did, you could create a crazy trade -- short front end debt and long long term debt which would experience extreme pricing convergence upon a filing.... amazingly, this trade would be massively positive carry as well.

I hear you on the puts and doing what makes sense and picking your spots; but given the capital structure pricing today it's a very very inefficient way (my opinion) to express your view which while common on this board appears to be very divergent from debt securities' market participants.

Clearly the pricing could be due to yield / liquidity, or just plain insanity... but I think it's worth Sears bears doing a lot of work on the debt if you think a filing is imminent.  I may short the '19's just to hedge out my much higher yield SRAC position (given SSRAP structure, that would be a seriously dirty hedge though).

Just some thoughts.  Good luck (actually, I take that back...)

Just to flash back.  The trade I proposed (long >'28 SRAC, short '19 HoldCo) has strongly converged.  SRAC up 10% (now at $45) and '19 HoldCo down ~30% (now at $60).  SHLD common unchanged basically so the way to play SHLD filing (which is more likely now) was not puts (at least in this reality).

Not picking on Walt who's view was clearly articulated, just thought it was an interesting follow up given the bizarre nature of the Sears discussions and business over time. :)

I think the issue with this trade (at current levels) is that the quicker SHLD files, the more value is left for those '19 HoldCo's and potentially well in excess of par value depending on how the restructuring is handled.  There's kind of a narrow path where the '19's are impaired while the senior SRAC's are fine.  They'd need to wipe out most of the remaining net assets, pay out the SRAC's, and file before the '19 maturity allowing ESL to prime Berkowitz (who also happens to be a large holder of what is arguably the fulcrum security alongside ESL). 

A SHLD restructuring will look like anything but a normal restructuring and the idea of owning one liability versus another based on seniority might not be the right way of looking at this.  Although I imagine the initial knee-jerk reaction to a filing would not be great for the '19 HoldCo's.  Full disclosure: buying some of the '19 notes for various reasons.

Picasso

  • Hero Member
  • *****
  • Posts: 2025
Re: SHLDQ - Sears Holdings Corp
« Reply #9043 on: October 24, 2017, 02:25:43 PM »
SHLD isn't going away completely.  They might file bankruptcy multiple times but I imagine there will be some new company formed for certain debt holders in the meantime and it will probably be worth something.  The only SRAC's deeply discounted are the ones maturing well after SHLD is likely to run out of cash or liquid assets.  And upside on them is capped at maybe a double. 

There's a double w/ the 2019's as well but you also have even more optionality because of where it sits and ESL's incentives.  They need to give SRG more time into 2019 and they already own the majority of those fulcrum notes. 

I think they're particularly more interesting because you can easily make the case that if SHLD files tomorrow, SRG is going to get hammered but the '19's will very likely be worth north of par.  If they file in '19 ahead of the maturity then SRG is probably worth a lot more than $40 but the '19's are probably not worth as much. 

Also if you look at the implied value for a newco with $625mn of the '19's at 50 cents on the dollar... I think the math gets kind of nutty in terms of good things that can happen versus bad. 

I sort of wonder what the appetite would be for SRG to issue equity to reduce leverage if ESL just totally threw in the towel.  Maybe something to watch for but until then it looks like ESL is still going for the home run.  The comments about being caught off guard w/ SRSC and the defensiveness of that blog post seem to indicate that isn't close to being the case.

I might be colored by the fact I've come to enjoy shopping at Sears and Kmart ;) 

Jurgis

  • Hero Member
  • *****
  • Posts: 5343
    • Porfolio
Re: SHLDQ - Sears Holdings Corp
« Reply #9044 on: October 24, 2017, 02:50:31 PM »
I might be colored by the fact I've come to enjoy shopping at Sears and Kmart ;)

Talk about going native...  ::)  8)
"Human civilization? It might be a good idea." - Not Gandhi
"Before you can be rich, you must be poor." - Nef Anyo
"Money is an illusion" - Not Karl Marx
--------------------------------------------------------------------
"American History X", "Milk", "The Insider", "Dirty Money", "LBJ"

BeerBBQ

  • Full Member
  • ***
  • Posts: 136
Re: SHLDQ - Sears Holdings Corp
« Reply #9045 on: October 25, 2017, 05:54:53 AM »


Also if you look at the implied value for a newco with $625mn of the '19's at 50 cents on the dollar... I think the math gets kind of nutty in terms of good things that can happen versus bad. 



Could you please expand a little on this comment?
« Last Edit: October 25, 2017, 05:56:28 AM by BeerBBQ »

adesigar

  • Sr. Member
  • ****
  • Posts: 438
Re: SHLDQ - Sears Holdings Corp
« Reply #9046 on: October 25, 2017, 11:07:45 AM »

Parsad

  • Administrator
  • Hero Member
  • *****
  • Posts: 8920
Re: SHLDQ - Sears Holdings Corp
« Reply #9047 on: October 25, 2017, 02:04:13 PM »
Eddie Lampert on Sears Canada

https://eddielampert.wordpress.com/2017/10/22/esl-response-to-the-globe-and-mail-article/

Yeah, that's kind of a bullshit letter.  We all know how much money was pulled out of Sears Canada and distributed to shareholders...ESL being the largest shareholder.  I live in Canada and watched Sears Canada collapse.  It wasn't because of management, but because ownership (primarily ESL through their stake) decided not to put any money into modernizing and updating Sears Canada.  Three perfect examples are the core locations around Vancouver and its suburbs...Downtown (Pacific Centre), Metrotown and Brentwood Mall.  All three disintegrated with barely any money put into Brentwood and Metrotown, while nominal upgrades were put into the Pacific Centre location.  Take a look at what Sears Pacific Centre looked like and what the new Nordstrom's in the exact same location looks like:

Sears Pacific Centre

https://static1.squarespace.com/static/529fc0c0e4b088b079c3fb6d/t/5977d9bc15d5db539c9f9aa9/1501026842305/Screen+Shot+2017-07-25+at+7.52.00+PM.png

Nordstroms - exact same location

https://imageserver-bisnow1.netdna-ssl.com/8G8ZBOGLXPmvZzL8xIUiVCPgUvg=/0x0/publisher/78504_1442848564_Nordstrom_Pacific-Centre-large.jpg

Nordstroms spent over $100M renovating the exterior and interior.  Added a white-linen restaurant, mid-level bar and lobby level cafe/bistro.  They also used only three floors of 8, and leased out the top 5 floors to Amazon, Microsoft and 2 of the 5 floors to a large law firm.  That Nordstroms is busy, all day, every day!  If people aren't shopping, they are eating there.

Eddie is a smart investor, but he may arguably be the worst retailer in history!  Cheers!
No man is a failure who has friends!

randomep

  • Hero Member
  • *****
  • Posts: 1108
    • Bull Bear and Value Blog
Re: SHLDQ - Sears Holdings Corp
« Reply #9048 on: October 25, 2017, 02:16:33 PM »
Eddie Lampert on Sears Canada

https://eddielampert.wordpress.com/2017/10/22/esl-response-to-the-globe-and-mail-article/

Huh, say what? He says Sears Holdings owns 90% of Sears Canada and it distributed shares to shareholders including ESL. So he runs ESL and Sears Holdings. How can he say Sears Canada did something without him knowing, as if he is an impotent outsider??  He pulls the strings on everything.... if they go bankrupt it is his doing IMHO

Cardboard

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3356
Re: SHLDQ - Sears Holdings Corp
« Reply #9049 on: October 25, 2017, 02:32:46 PM »
"That Nordstroms is busy, all day, every day!  If people aren't shopping, they are eating there."

The clientele of a Nordstrom is a little different than Sears even when Sears was doing really well. Don't recall seeing Burbery and Louis Vuitton bags at Sears. So even if they had invested the $100 million at that mall, it basically did not belong there.

The tragedy is that this company should have been folded years ago: liquidated. Declining same store sales, lack of appeal by consumers for the stores, poor inventory turnover, poor profitability, etc. did not begin with the advent of Internet shopping. The decline of a retail chain is well documented with turnovers almost never occuring. I have seen Gap stabilizing but, that is about it. Back then, there was a good amount of value in the real estate and other assets. For example, these stores in the Vancouver area would have generated top dollar.

Unfortunately, Lampert blew a lot of money buying back the shares at very high prices, then kept on dreaming with an internet concept while depleting the stores of any resource and created a sink hole.

I mentioned tragedy because I recall this notion that firing employees or upon a liquidation would have been a terrible thing to do. Here you can pull some pages from Jack Welch: Straight from the Gut, who rightfully mention that keeping employees into a declining business with no opportunity is a disservice to these employees.

Guess what? That is exactly what happened. The people who stuck at Sears ended up with a demoralizing job and now to find a new one must be quite difficult because who wants to employ people from a failure? Are they motivated employees? Do they have special skills adapted to today's retail environment?

Cardboard