Sears Holdings Corp. (fka SHLDQ)

[Large Green]

Judge Drain Commented SHLDQ MAY File Motion To Exit BK CASE

Multiple times during the hearing, Judge Drain mentioned that companies which became administratively insolvent after 363 sale of assets do not have confirmations of plans but just have a dismissal of their bankruptcy petition. Was he implying that he expected this course of action for Sears? In addition, Weil, Gotshal lawyers never mentioned that "we are working on a plan and expect it to be done etc., etc.".


https://seekingalpha.com/article/4239986-really-happened-sears-hearing-now

Reorganization Plan

Despite the mention of a reorganization plan in the PBGC term sheet, there still may not be a reorganization plan. Sears could not in good faith enter into an agreement that required a confirmation of a plan because they are "administratively insolvent" after the sale. By the way, there is no specific statement in the term sheet that requires a confirmation of a plan. In order to confirm a plan under section 1129, administrative claims must be paid. Currently, they are about $42 million short. It is unclear if this shortfall includes estimated expenses for creating the plan and disclosure statement. Plus, there are costs to solicit ballots and other costs.

Multiple times during the hearing, Judge Drain mentioned that companies which became administratively insolvent after 363 sale of assets do not have confirmations of plans but just have a dismissal of their bankruptcy petition. Was he implying that he expected this course of action for Sears? In addition, Weil, Gotshal lawyers never mentioned that "we are working on a plan and expect it to be done etc., etc.".

There will be a hearing on February 14 to extend the exclusive period to file a plan until June 12 and to extend the period to solicit ballots until August 13. Assuming they use the entire time period, the earliest that there would be a confirmation hearing is the very end of August, which would most likely mean that the earliest they could exit bankruptcy is mid-September. All this assumes they continue with the normal Ch.11 process and don't convert to Ch.7 or final a motion to have the Ch.11 petition dismissed. (If it is dismissed or a conversion to Ch.7, SHLDQ shares would be cancelled.)

Conclusion (Sounds like a bitter short that got hosed)

Sears Holdings bankruptcy case has captured the attention of many investors who never trade bankruptcy securities because the company is an American icon. I made a very nice profit on my short of SHLDQ that I opened back in September 2007 and closed when the stock was trading between $2 and $3 because the cost to carry was too high versus potential profits. I continued to write on this bankruptcy case despite no longer having a financial interest because the case will be considered a classic bankruptcy case for decades to come. While, over the years, I was directly involved in some of the largest bankruptcies/M&A deals/proxy fights, I would rather watch this case from the box seats.

There seems to be a lack of clarity regarding certain items in the sale order and in the PBGC agreement, as evidenced by the parties who negotiated them and their $166 million accounts payable disagreement. So, it is not unexpected that investors are uncertain about key terms for recovery by 2lien holders and the potential $80 million priority for payment of releases. Therefore, I am not to able make any recommendations regarding the notes and SHLDQ stock.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.