cut and paste from an article. note, while the article says lampert's shares are essentially worthless that doesn't mean they are extinguished. holding a share which at one time was trading over $100/share which now trades at $0.175/share does mean that your previously valuable share is now essentially worthless. however, that does not necessarily mean worth zero.
still uncertain how this might play out but the filings indicate there is a motion before the court to accept the plan to reorganize versus forcing a plan of liquidation.
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What distinguishes the Sears bankruptcy filing from the filings of many other retailers over the last 10 years?
The capital structure of Sears is unique in the respect that Edward S. Lampert controls approximately 50% of the stock and 40% of the debt (mostly secured) of Sears. Of course, the value of his equity is essentially zero now, but his debt position should serve him well in the restructuring process. Before the bankruptcy filing, Lampert’s hedge fun, ESL, received more than $200 million per year in interest payments from Sears for loans to Sears to help keep it afloat.
Over the last four years, Sears has sold two iconic brands, Land’s End and Craftsman, to raise money to keep the company operating. In 2015, Sears also sold 235 of its most valuable store properties to Seritage Growth Properties, a real estate investment trust, for $2.7 billion. Lampert is also the chairman and major stockholder of Seritage, which received in excess of $180 million in rent and other fee payments from Sears in 2017. There still are some iconic brands remaining in the company—most notably Kenmore. One can see that Lampert has a large stake in making something viable out of the restructuring.
Given that Lampert is in a control position in the restructuring process because of his debt holdings, that he has extensive inside information about the operational functioning of Sears (he was chairman and CEO prior to the filing), and that his economic incentives are aligned with having a successful restructured entity, he will likely try to do everything possible to have Sears emerge from bankruptcy as a viable entity.
In the likely event that asset sales or business units are auctioned off in the restructuring process, Lampert, with his knowledge of the business and his secured debt holdings, is well positioned to be a stalking horse bidder—the first bidder in any auction, who has input into the rules of the auction (such as minimum bid increments, who qualifies to bid, etc.) and who will recover various fees incurred in the process if he does not emerge as the winning bidder. In addition, if he were to be the winner of any bidding process, as a secured creditor he could use the full par value of his claims when paying for the acquisition.
Of course, there are several impediments. There will likely be fraudulent conveyance law suits by other creditors charging that ESL took valuable assets out of Sears prior to its bankruptcy filing and paid less than fair-market prices for these assets. Also, since leases on closed stores might be more valuable if the store was closed (even if the store was profitable), Lampert might prefer the value in the lease. In addition, the judge will have to approve any sales transactions and any reorganization plan will have to be proven to be of greater economic value than the alternative of just converting to Chapter 7 and doing a straight liquidation of all of the assets.
