Sears Makes Progress on Credit Facility

Hat Tip to reader Chris for finding this…This is a sort of update on a post from March.

From the Daily Herald:

Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) are coordinating talks with underwriters to roll over at least 65 percent of the company’s credit line to June 22, 2012, said the people, who declined to be identified because terms aren’t set.

JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Wells Fargo made commitments to extend Sears’s revolver, one person said. The company is unlikely to extend its debt by the proposed $2.6 billion, or the full amount, according to the person, who said Sears might be able to get $2 billion.

Sears (SHLD), acquired by Edward Lampert-led Kmart Holding Corp. for $12.3 billion in 2005, plans to replace the existing five- year bank line due March 2010 “at a capacity more in line with our historical borrowing practices,” the retailer said in its annual report dated March 16.

If lenders approve the proposal, Hoffman Estates, Illinois- based Sears would join more than 75 companies that have amended credit terms this year at higher interest rates as banks increase borrowing costs.

Higher Interest Rate

The company is proposing to pay lenders that extend the loan an interest rate four percentage points more than the London interbank offered rate, the people said. That compares with the 87.5 basis-point spread the company currently pays, according to data compiled by Bloomberg. One basis point is 0.01 percentage point.

Kimberly Freely, a Sears spokeswoman, declined to comment on the negotiations, as did Wells Fargo’s Susan Stanley, Louise Hennessy of Bank of America and Tasha Pelio, a JPMorgan spokeswoman. Danielle Romero-Apsilos, a Citigroup spokeswoman, didn’t immediately return a message left at her office.

The extended revolving line would have a 100 basis-point fee on the unused portion of the loan, which would drop to 75 basis points if at least 50 percent of the facility is drawn, the people said. Sears’s current facility fee is 17.5 basis points, Bloomberg data show.

Sears borrowed $435 million from the $4 billion revolver and had $968 million of letters of credit outstanding under the facility as of Jan. 31, according to the annual filing. The company presented its proposal to roll over a portion of its credit line to individual lenders two weeks ago and held talks with banks this week, according to one person.

So, will Sears get it facility? Yes. Will it cost much more? Yes. Is it surprising or stunning that it does? No. Can we finally put the “Sears will have a liquidity crisis on 2009” refrain to bed? I hope so….

Disclosure (“none” means no position):Long SHLD, WFC, none