Tags: Sears | Stock | Bonds | Rights | Offering

Sears Stock, Bonds Surge on Plan for Holder Rights Offering

Monday, 20 October 2014 05:26 PM

Shares of Sears Holdings Corp. surged the most in almost six years Monday, and its bonds also rose, after the retailer announced a rights offering in a bid to raise capital that will give it time to return to profitability.

The company’s stock advanced 23 percent to $34.96, the biggest percentage increase since January 2009. The chain is planning to offer its shareholders $625 million of 8 percent unsecured notes due 2019 plus warrants to buy additional shares, according to a statement Monday.

The operator of Kmart and its namesake Sears stores, which Fitch Ratings last month calculated would need $4 billion of capital to avoid running out of cash in 2016, will raise as much as $2.07 billion this year if rights offerings are fully subscribed, according to a blog post Monday. The company this month offered shareholders as much as 40 million shares in its Sears Canada unit.

“This deal bolsters the balance sheet by alleviating the immediate liquidity issues,” said Steven Azarbad, co-founder and chief investment officer of the New York-based hedge fund Maglan Capital. “It doesn’t solve all the liquidity problems, but it buys the company six to nine months.”

Chris Brathwaite, a Sears spokesman, declined to comment.

Bonds Climb

Edward Lampert, the billionaire chairman and chief executive officer who is the retailer’s largest shareholder, will subscribe for his entire allotment of 48.5 percent of the notes, assuring the Hoffman Estates, Illinois-based company of $303 million, according to the blog post. Fairholme Capital Management LLC, which owns 23.2 percent of Sears, “expects that certain of its clients will participate in the rights offering at levels to be determined,” according to the statement.

Its $1.23 billion of 6.625 percent, second-lien notes due October 2018 gained 2.8 cents on the dollar to 93.5 cents to yield 8.59 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the highest closing price since March.

“Based on the stock prices, the market is in support of the deal and is expecting it would go through,” said Azarbad.

The warrants allow shareholders to buy additional stock for five years at $28.41, the closing price last week.

Sears will also raise funds by leasing space to Primark Stores Ltd., the British budget-clothing retailer that’s expanding in the U.S. Primark will set up shop in seven Sears stores in the Northeast, according to a second statement Monday.

The rights offering is “good for the vendors because the offering would be ranked behind the vendor liabilities at the operating company level. If you are a vendor, you will feel much more comfortable in terms of the liquidity point of view,” said Azarbad.

Earlier this month, at least one of Sears’s vendors were said to halt shipments due to coverage reduction by three of the company’s biggest insurance firms. Sears reported 30 straight quarters of losses.

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Shares of Sears Holdings Corp. surged the most in almost six years Monday, and its bonds also rose, after the retailer announced a rights offering in a bid to raise capital that will give it time to return to profitability.
Sears, Stock, Bonds, Rights, Offering
476
2014-26-20
Monday, 20 October 2014 05:26 PM
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