Retail
Sears Borrowing $400 Million From Affiliates of Eddie Lampert's ESL
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Sears Holdings Corp. (NASDAQ: SHLD) has made a filing with the Securities and Exchange Commission (SEC) indicating that it will borrow some $400 million via a short-term loan with groups named JPP II LLC and JPP LLC. What shareholders may take issue with is that these entities are affiliated with Eddie Lampert’s ESL Investments Inc.
The filing shows that on September 15, 2014, Sears Holdings Corp., via Sears, Roebuck and Co., Sears Development Co. and Kmart Corp., entered into a $400 million secured short-term loan with JPP II LLC and JPP LLC, entities affiliated with ESL Investments Inc. — where Eddie Lampert is the chairman, chief executive officer and sole stockholder.
The first $200 million of the loan was funded at the closing on September 15, and $200 million will be funded on September 30, 2014.
Sears plans to use the proceeds of the loan for general corporate purposes. More details of the loan are as follows:
The Loan is scheduled to mature on December 31, 2014, but as long as there is no event of default, the maturity date can be extended to February 28, 2015 at the discretion of the Company upon the payment of an extension fee equal to .5% of the principal amount. The Loan will have an annual base interest rate of 5%. The Borrowers are required to pay an upfront fee of 1.75% of the full principal amount.
The Loan is guaranteed by the Company and is secured by a first priority lien on 25 real properties owned by the Borrowers. In certain circumstances, the Lender may exercise its reasonable determination to substitute one or more of the properties with substitute properties. The Loan includes customary representations and covenants, including with respect to the condition and maintenance of the real property collateral.
The Loan has customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, failure to comply with covenants, material inaccuracy of representation or warranty, and bankruptcy or insolvency proceedings. If there is an event of default, the Lender may declare all or any portion of the outstanding indebtedness to be immediately due and payable, exercise any rights it might have under any of the Loan documents (including against the collateral), and instead of the base interest rate, the Borrowers will be required to pay a default rate equal to the greater of (i) 2.5% in excess of the base interest rate and (ii) the prime rate plus 1%. The Loan may be prepaid in whole or in part, without penalty or premium.
Sears shares closed down 2.2% at $33.52 on Monday, against a 52-week range of $31.26 to $67.50.
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