That $400 million loan that was supposed to help Sears Holdings Corp. (NASDAQ: SHLD) make it through the holidays has apparently not done its job. A report Wednesday morning that three of the largest insurance firms for Sears’s suppliers are trying to reduce coverage on shipments to the retailer sent shares plunging as much as 17%.
A report from Bloomberg News cites unnamed sources who say that vendor credit insurance firm Euler Hermes Group has sent out notices cancelling credit insurance for vendor sales to Sears and that a second insurer, Coface, is planning to do the same. Bloomberg said it knows of one supplier that has withheld products from Sears.
Credit insurance protects vendors from non-payment by their customers. If insurers are unwilling to support Sears’s credit, then vendors must absorb all the risk themselves and many are not going to be willing to do so. One insurer told Bloomberg, “We’ve reduced [Sears’s supplier coverage] as we’ve seen the risk increase.”
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