SHLD may not go Chap 11 for a while but stock is dead
After reading the article, it looks like the CEO is going to keep loaning money to SHLD from his hedge fund. Since he controls over 50% of SHLD, he can keep things going as long as he wants to.
I predict that as long as there is something for him to secure loans to SHLD against, he will keep putting money into it, but once the last asset of value is gone, then I expect he will let SHLD file Chapter 11 and take everything over, leaving unsecured creditors, vendors and existing common sharesholders with zero.
It also sounds like vendors are starting to cut off ties with SHLD, since what would be even worse than having zero revenue from SHLD as a customer, would be to get caught in a Chap 11 filing as an unsecured creditor. (i.e. Not only would they have no revenue but all kinds of expenses from goods supplied that they did not pay for.)
While it does look like as long as the CEO lends money to SHLD they will not file Chap 11, I do think the stock will drift lower as the equity gets swamped by the large and growing debt, to where at some point the common shares will be nothing more than like a call option on the company.
From reading the article it does look like the CEO is systematically stripping the company of assets as he loans it more money in an attempt to do a turnaround or transformation of the company into some kind of marketing/tech idea.
I think that any vendor supplying the company as an unsecured creditor has to be out of their minds.
I still can't believe the stock trades as high as it does, since it looks like the company is on track to lose $1 billion plus per year for ongoing operations, until Chap 11 is filed, and is never going to make any money.
Louis J. Desy Jr.
Disclosure: I own Jan 18 $5 put options.
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