Sears should close for good, creditors say

CNN/ Newswire | 11/12/2018, 11:29 a.m.
It's time to pull the plug on Sears, according to its creditors.
It's time to pull the plug on Sears, according to its creditors.

By Chris Isidore, CNN Business

(CNN) -- It's time to pull the plug on Sears, according to its creditors.

A committee of unsecured creditors said in a court filing Friday that the company's plans to stay in business during bankruptcy are "nothing more than wishful thinking " and "an unjustified and foolhardy gamble with other people's money."

The committee applauded the company's optimism for returning to profitability, but said the Sears recovery plan would run up additional losses without saving the company or the remaining jobs.

It said creditors who are owed money by Sears and whose debt is not backed by hard assets such as real estate or credit card balances, will pay for Sears' attempt to stay in business.

"Unfortunately, and notwithstanding desires to the contrary" staying in business "may no longer be an option" for Sears, the filing said.

Spokespeople for Sears and its chairman, Eddie Lampert, declined to comment.

The objections of the committee could be an important turning point in Sears' battle to stay in business.

The court has an obligation to protect creditors in a bankruptcy case, and a judge can approve a company's plans to stay in business only if convinced that will be the best way to repay money that the company owes.

Sears Holdings, which includes both the Sears and Kmart brands, filed for bankruptcy on October 15. It had 68,000 employees and nearly 700 remaining stores at the time of the filing.

Sears said it could use the bankruptcy process to cut costs, shed debt and restore itself to profitability. But it did warn that it was burning through about $125 million a month in cash, and its ability to remain in business was in doubt.

The company said it wanted to slim down to 400 profitable stores and sell the real estate associated with those stores to raise cash. But the creditors question whether such a plan is viable. It said only Lampert's hedge fund has expressed an interest in buying the real estate.

In an earlier filing, the committee speculated the series of deals between Lampert's hedge fund and Sears benefited him more than the company. Lampert's hedge fund responded that the deals were done only to give Sears every chance to survive, and that each can be defended as in the best interest of the company.

The creditors' most recent motion argues that any deal to sell the remaining stores to Lampert's hedge fund would not "withstand scrutiny" of the court.

Two of the nine members of the committee are mall owners. Simon Property Group (SPG) and Brixmor Property Group (BRX) have said they expect to be better off without Sears. Shares for both companies are up since Sears' bankrutpcy filing.

The creditor's committee is expected to meet with the company Monday. A hearing in the bankruptcy court is scheduled for Thursday to weigh some of the company's plans to stay in business.

The committee said it is hopeful that the company can present convincing data at Monday's meeting to show why staying in business makes sense, but it doesn't expect that to be the case.