Sears Holding Corp. is leveraging its real estate assets once again, this time taking a $500 million loan. The first $250 million, which the company took Friday, is secured by mortgages on 13 properties owned by its subsidiaries and will be secured by an additional eight properties if any more of the loan is drawn.
The 15-month, $500 million secured loan facility is also propped up with investment funds from ESL Investments (Sears CEO Edward Lampert’s own hedge fund) and Microsoft founder Bill Gates’s Cascade fund, report Bloomberg and Crain’s Chicago Business. ESL Investments additionally took on some of the debt Sears had secured earlier, according to reports.
Sears said that the loan will help it continue to work on its turnaround, most notably its omnichannel Shop Your Way program.
Iconic retailer Sears has operated in the shadow of its past glories for a while now, and has continued to struggle here in early 2016. Soon after a February announcement that it would close some 50 stores, Sears Holdings Corp. reported Q4 revenue declines of $796 million.
Sears said that it was trying to avoid taking on debt in order to gain flexibility for its turnaround through cost-cutting and other efficiencies, but that it has the capacity to raise billions of dollars through a variety of financing options. That could include a sale of its auto business, according to the company's press release around that time.
Sears now says it will take on more debt after all in order to accomplish its goals. And there’s a lot on its plate. Earlier this year the company had to deal with a report that many women would go to Goodwill for their clothing before they’d go to Sears. It’s also been dealing with criticism about poorly lit and disorganized stores in some areas.
Aggressive cost-cutting—particularly its store closings and layoffs—has been necessary but expensive in the short term. But there comes a point when cost cutting, including store closings, impede efforts to make real improvements, too.
After all, omnichannel retailers do need to be able to leverage their brick-and-mortar stores to reach customers. The question for Sears is whether they are still over-stored and thus have the room for more closings, or if the cost-cutting might begin to eat into its ability to operate effectively. Its Shop Your Way omnichannel program, which includes in-store and curbside pickup, has garnered praise from retail experts and customers alike, but it's unclear how much that is contributing to its turnaround
Sears EVP and CFO Robert A. Schriesheim said in a statement announcing the new loan that the company knows what it’s doing, and that its considerable real estate assets will continue to help foster its turnaround.
"We have an asset rich portfolio which provides us with numerous options to finance our transformation strategy," Schriesheim said. "The expected closing today of the previously announced $750 million Term Loan, together with this $500 million facility, provides $1.25 billion of committed financing. When considered together with our previously announced intention to monetize at least $300 million of assets, this set of actions would result in an aggregate of $1.5 billion of enhanced liquidity. As we have consistently demonstrated, we will continue to take actions to adjust our capital structure and manage our business to enable us to execute on our transformation while meeting all of our financial obligations.”