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For All of You Sears Holdings Longs!


Parsad
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A friend of mine thought he would help our boardmembers who are interested in Sears Holdings, view it another way:

 

Lots of people are confused with Sears. I will not give you the analysis but I may give you clues on how to look at it in a different way.

 

1) Please read the prospectus of SHLD 6 5/8% senior secured notes due 2018

2) Notes to financial statements #21 of the latest 10K

3) Notes to financial statements #15 of the latest 10Q

4) Segregate the Guarantor subsidiaries and the Non-Guarantor subsidiaries.

 

You have some outstanding analysts and portfolio managers on your board and they can easily tear apart the financials of Guarantor/ Non-Guarantor business. Remember, Lampert is a capital allocator and, if he is good in anything, he should be good in segregating assets.

 

Go to work!  Let's hear what you find.  Cheers!

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well, I just looked for a half hour or so, not thorough by any respect, but I had read it all before at least once.

I don't pretend to be an outstanding analyst or portfolio manager, but I do read and think some.

 

Here is what I see:

 

The new debt is secured by cc receivables and inventory.

 

Real estate and brands (where anyone has suggested the value lies) are seemingly unencumbered by the new issuance, which is seemingly high in the capital order.

 

So, if the Big BK happens, as the short side swears will happen anywhere from three years ago to within the next two years...

 

Not only does it appear that the debt is more than covered by hard assets, never mind the "intangibles" (which has been my loose calculation since 2006, though it has grown thinner recently.)

 

but if it is not, the debt holders have no legal claim on the other assets.

 

Now tearing apart the details of the guarantor/non-guarantors is beyond me.

I'm interested to follow this thread.

 

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The prospectus mentions Sears Canada and Orchard as non-guarantees and in the list of guarantees no mention is made of Craftsman or Kenmore. Can anybody explain that to me?

 

KCD IP, LLC is the entity that holds the IP for Kenmore, Craftsman, and Diehard.

 

We should be thinking about what the asset-lite + Sears Canada part of the biz is worth.

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The prospectus mentions Sears Canada and Orchard as non-guarantees and in the list of guarantees no mention is made of Craftsman or Kenmore. Can anybody explain that to me?

 

KCD IP, LLC is the entity that holds the IP for Kenmore, Craftsman, and Diehard.

 

We should be thinking about what the asset-lite + Sears Canada part of the biz is worth.

 

Taking into consideration what a capital allocator could do with the cash flows.

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  • 1 year later...

I have been working on this and I am confused.  Here are some questions.

 

1. How do you figure out which subs are part of the Gaurantor and which are part of the non-gaurantor?

2. According to the bond prospects, it reads as if the only collateral they are able to call on are the inventories and receivables, not the real estate. Is that right, can a bond only have collateral from one part of a company and not the whole? (page 22. http://www.sec.gov/Archives/edgar/data/56824/000119312511205132/d424b3.htm)

3. When looking at the separate balance sheets offered in the recent 10Q,  I am trying to figure out what the balance sheet would look like if the gaurantor subsidiaries went bankrupt and the shareholder was only left non-gaurantor and the parent.  Do you only need to factor out the intercompany loans and inter company investments?

4. Looking at the intercompany investments, looks like the gaurantor made investments into the gaurantor, how is that so?

5. Why is there there 4.4B in PP&E in the gaurantor and only 1.6B in the non-gaurantor? Is all the good real estate in the non-gaurantor? If so, how can that happen. Can anyone explain this?

 

 

February 2nd 2013 Balance Sheet

http://1.bp.blogspot.com/-eFUF8_8hkA4/UhtBkK7XfHI/AAAAAAAAAaQ/H1r3SbyKRHc/s640/Feb+2nd+2013+SHLD+balance+sheet+with+guarantor.jpg

 

26 weeks modified income statement February 3rd

http://2.bp.blogspot.com/-9oPlWHBf9OY/UhtCghi5ukI/AAAAAAAAAac/TtOGOolAX98/s640/modified+26+weeks+ended+august+3,+2013.jpg

 

26 weeks modified comprehensive income statement February 3rd

http://2.bp.blogspot.com/-UkpjtqYrR0I/UhtDvoqe_FI/AAAAAAAAAao/gxPv9eFC97A/s640/modified+26+comprehensive+income+weeks+ended+august+3,+2013.jpg

 

26 weeks modified cash flow statement February 3rd

http://3.bp.blogspot.com/-CA4laoYOuMg/UhtEhIHM4oI/AAAAAAAAAa0/jYn9NLgDMeY/s640/modified+26+comprehensive+cash+flow+weeks+ended+august+3,+2013.jpg

 

Interesting SEC file. Any help would be much appreciated!

 

 

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Yeah, I'll take a crack at a somewhat meaningful contribution.  These bonds appear to be basically securitized asset-backed term debt, secured by A/R and inventory.  The non-guarantor business looks like "good sears" but all of this seems like much ado about not a lot to me.  I mean it does highlight how great the "non-retailer sears" would look, but I think that is pretty intuitive.  Of course one has to wonder if it would look as great in arms-length transactions.  The guarantor and non-guarantor designations are only with respect to this one asset based bond issuance of about $1 bil, right?  They've got plenty of coverage of A/R and inventory to cover that issuance, so they shouldn't pose a problem for anyone other than the entities holding the inventory and A/R no matter which sub is a guarantor, also other asset based lines of credit would likely be superior to these bonds.  The non-guarantor subs would still be "on the hook" for general obligations of the parent (such as implosion of pension and PBGC coming in to take everyone's cookies), as far as I can tell.

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I have been working on this and I am confused.  Here are some questions.

 

1. How do you figure out which subs are part of the Gaurantor and which are part of the non-gaurantor?

2. According to the bond prospects, it reads as if the only collateral they are able to call on are the inventories and receivables, not the real estate. Is that right, can a bond only have collateral from one part of a company and not the whole? (page 22. http://www.sec.gov/Archives/edgar/data/56824/000119312511205132/d424b3.htm)

3. When looking at the separate balance sheets offered in the recent 10Q,  I am trying to figure out what the balance sheet would look like if the gaurantor subsidiaries went bankrupt and the shareholder was only left non-gaurantor and the parent.  Do you only need to factor out the intercompany loans and inter company investments?

4. Looking at the intercompany investments, looks like the gaurantor made investments into the gaurantor, how is that so?

5. Why is there there 4.4B in PP&E in the gaurantor and only 1.6B in the non-gaurantor? Is all the good real estate in the non-gaurantor? If so, how can that happen. Can anyone explain this?

 

 

February 2nd 2013 Balance Sheet

http://1.bp.blogspot.com/-eFUF8_8hkA4/UhtBkK7XfHI/AAAAAAAAAaQ/H1r3SbyKRHc/s640/Feb+2nd+2013+SHLD+balance+sheet+with+guarantor.jpg

 

26 weeks modified income statement February 3rd

http://2.bp.blogspot.com/-9oPlWHBf9OY/UhtCghi5ukI/AAAAAAAAAac/TtOGOolAX98/s640/modified+26+weeks+ended+august+3,+2013.jpg

 

26 weeks modified comprehensive income statement February 3rd

http://2.bp.blogspot.com/-UkpjtqYrR0I/UhtDvoqe_FI/AAAAAAAAAao/gxPv9eFC97A/s640/modified+26+comprehensive+income+weeks+ended+august+3,+2013.jpg

 

26 weeks modified cash flow statement February 3rd

http://3.bp.blogspot.com/-CA4laoYOuMg/UhtEhIHM4oI/AAAAAAAAAa0/jYn9NLgDMeY/s640/modified+26+comprehensive+cash+flow+weeks+ended+august+3,+2013.jpg

 

Interesting SEC file. Any help would be much appreciated!

 

Just a quick response to try and help you move things along.

 

1. How do you figure out which subs are part of the Gaurantor and which are part of the non-gaurantor?

 

Look at the Indenture and Security Agreement from the original debt issuance in 2008.  It's the same documents.  Just a point of clarification.  There are subs that are guarantors and subs that are not guarantors, they are not "part of" the guarantor.  That is, there are many guarantors and non guarantors.  From memory, guarantors are all domestic subs that have substantial amounts of credit card receivables.  It might have included certain levels of indebtedness as well, I don't recall.  From my perspective, it was interesting to see Land's End included, but KCD and (certain) real estate excluded.

 

2. According to the bond prospects, it reads as if the only collateral they are able to call on are the inventories and receivables, not the real estate. Is that right, can a bond only have collateral from one part of a company and not the whole?

 

Collateral can be whatever someone wants it to be with certain exceptions such as borrowing to carry stock.  But in the case of "hard assets", sure, it could be this account and not that account, it could be these receivables and not those receivables.

 

3. When looking at the separate balance sheets offered in the recent 10Q,  I am trying to figure out what the balance sheet would look like if the gaurantor subsidiaries went bankrupt and the shareholder was only left non-gaurantor and the parent.  Do you only need to factor out the intercompany loans and inter company investments?

 

I've tried to talk about these issues a couple of times, but other than one or 2 comments it's been ignored and the same questions and issues get raised repeatedly.  Don't worry about figuring out what bankruptcy will do to the guarantor and non guarantor entities.  It's a big waste of time in my opinion.  People are confusing things here.  It's not like the guarantors and non guarantors live in separate worlds.  They are all related parties and have the same or related ownership.  There isn't a situation where just the guarantor entities go under (it's also impossible for ALL of those to go under, there are dozens of entities).

 

The more likely situation would be that either the K-Mart or Sears retail subs went under.  That's the question.  If they did then any creditors of those subs would be structurally subordinated to any creditors of their subs.  But they would have a line on the equity therein.  This then ultimately effects shareholders of Holdings.  There is little to no value in Holdings itself, it's all in the various subs as far as I can tell.  So if a leg got cut off, it's tough to see how Holdings doesn't default on its debt. 

 

However, at the end of the day, even in a liquidation there is almost certainly more than enough assets to protect against a permanent capital loss.

 

4. Looking at the intercompany investments, looks like the gaurantor made investments into the gaurantor, how is that so?

 

See above.  Guarantors and non guarantors have no special place in life other than their roles under the credit agreement.  They are either on the hook for that debt or not.  Other than that they are simply corporate entities.  They can invest or not as their organizational and other constituent documents permit.

 

5. Why is there there 4.4B in PP&E in the gaurantor and only 1.6B in the non-gaurantor? Is all the good real estate in the non-gaurantor? If so, how can that happen. Can anyone explain this?

 

See above.  These are just corporate entities.  They own what they own.  Based on a 10-K or something there is no way to tell who owns what pieces of real estate. 

 

Hope this helps a little.

 

 

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3. When looking at the separate balance sheets offered in the recent 10Q,  I am trying to figure out what the balance sheet would look like if the gaurantor subsidiaries went bankrupt and the shareholder was only left non-gaurantor and the parent.  Do you only need to factor out the intercompany loans and inter company investments?

 

I've tried to talk about these issues a couple of times, but other than one or 2 comments it's been ignored and the same questions and issues get raised repeatedly.  Don't worry about figuring out what bankruptcy will do to the guarantor and non guarantor entities.  It's a big waste of time in my opinion.  People are confusing things here.  It's not like the guarantors and non guarantors live in separate worlds.  They are all related parties and have the same or related ownership.  There isn't a situation where just the guarantor entities go under (it's also impossible for ALL of those to go under, there are dozens of entities).

 

The more likely situation would be that either the K-Mart or Sears retail subs went under.  That's the question.  If they did then any creditors of those subs would be structurally subordinated to any creditors of their subs.  But they would have a line on the equity therein.  This then ultimately effects shareholders of Holdings.  There is little to no value in Holdings itself, it's all in the various subs as far as I can tell.  So if a leg got cut off, it's tough to see how Holdings doesn't default on its debt. 

 

However, at the end of the day, even in a liquidation there is almost certainly more than enough assets to protect against a permanent capital loss.

 

 

Thanks Kraven.  That was a good response.  But I have a few questions on the above. Particularly on this:

 

"There isn't a situation where just the guarantor entities go under....So if a leg got cut off, it's tough to see how Holdings doesn't default on its debt. "

 

Maybe I am misunderstanding, but I thought that the guarantors could go under and this wouldn't cause a default on the parent.  This seemed to be what Parsad's friend was discussing.  Also, if we look at the CF statement, all the CFO is coming from the non-guarantees.  So it does look like to me that ESL is setting a situation where he can selectively default if need be and leave the parent whole.

 

 

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Let me echo what Kraven has said.

 

I've actually gotten PMs asking about the guarantor/non-guarantor subs, and I have respectfully declined to offer any input whatsoever (I tend to be overly cautious about providing anything resembling legal advice).  However, what I have said in response is that the guarantor/non-guarantor breakdown is most useful for determining what the asset-lite biz could potentially be worth.  And I think that's what Parsad's friend was really getting at as well.

 

So, it's probably not worth spinning your wheels on this issue.

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3. When looking at the separate balance sheets offered in the recent 10Q,  I am trying to figure out what the balance sheet would look like if the gaurantor subsidiaries went bankrupt and the shareholder was only left non-gaurantor and the parent.  Do you only need to factor out the intercompany loans and inter company investments?

 

I've tried to talk about these issues a couple of times, but other than one or 2 comments it's been ignored and the same questions and issues get raised repeatedly.  Don't worry about figuring out what bankruptcy will do to the guarantor and non guarantor entities.  It's a big waste of time in my opinion.  People are confusing things here.  It's not like the guarantors and non guarantors live in separate worlds.  They are all related parties and have the same or related ownership.  There isn't a situation where just the guarantor entities go under (it's also impossible for ALL of those to go under, there are dozens of entities).

 

The more likely situation would be that either the K-Mart or Sears retail subs went under.  That's the question.  If they did then any creditors of those subs would be structurally subordinated to any creditors of their subs.  But they would have a line on the equity therein.  This then ultimately effects shareholders of Holdings.  There is little to no value in Holdings itself, it's all in the various subs as far as I can tell.  So if a leg got cut off, it's tough to see how Holdings doesn't default on its debt. 

 

However, at the end of the day, even in a liquidation there is almost certainly more than enough assets to protect against a permanent capital loss.

 

 

Thanks Kraven.  That was a good response.  But I have a few questions on the above. Particularly on this:

 

"There isn't a situation where just the guarantor entities go under....So if a leg got cut off, it's tough to see how Holdings doesn't default on its debt. "

 

Maybe I am misunderstanding, but I thought that the guarantors could go under and this wouldn't cause a default on the parent.  This seemed to be what Parsad's friend was discussing.  Also, if we look at the CF statement, all the CFO is coming from the non-guarantees.  So it does look like to me that ESL is setting a situation where he can selectively default if need be and leave the parent whole.

 

These things get complicated and simplistic statements (from me) tend to oversimplify a complex matter.  I personally believe that much has been attributed to the guarantor/non-guarantor issue then should be. 

 

Let me try to answer your question as best I can.  Sears Holdings is the ultimate parent and the entity which shareholders hold an equity interest in.  Holdings owns various subsidiaries, including the K-Mart Retail and Sears Retail entities.  In turn, both of those subs own various subs and so on. 

 

Holdings is the issuer of this debt.  Various subs are guarantors and various other subs are not guarantors.  I am sure you know all of this, I'm just trying to set it out so that a discussion can occur using the same framework.  Guarantees work in various ways, but essentially it means that if an obligor does not make good on an obligation the guarantor will be obligated to do so. 

 

As you know, a holding company generally only can get funds to pay its debts (and do whatever else it needs) in one of a few ways:  (1) borrowing or equity issuance, (2) dividend or interest income from existing investments or (3) dividends from subsidiaries.  Let's assume that Holdings needs money from its subs in order to pay current interest and ultimately pay off the principal.

 

The credit agreement doesn't have that many covenants in terms of which subs needs to guarantors and which don't.  I am sure this was heavily negotiated.  There are 2 ultimate protections.  One, it's a default if interest and principal isn't paid as required and two, there is a coverage test tied to the asset base (borrowing base which is essentially inventory and receivables, I believe).

 

So now we have a framework.  Forget about which entity is a guarantor for a second.  It gets money from all its subs as they have it and are able to pay subject to their own obligations (remember that dividends can't be paid up until subs own obligations are paid, but that's neither here nor there). 

 

Let's assume that a guarantor sub goes under for whatever reason, it doesn't matter what.  Let's assume this sub is not one of the "main" retail entities, but is just a random sub doing who knows what.  So now it is unable to pay amounts to Sears or K-mart retail, as the case maybe, and that's that much less than those can pay to Holdings.  Let's assume a non guarantor went under.  Same thing!  There's just that much less money to make it's way up the chain to Holdings.

 

From the standpoint of a creditor it probably didn't really matter all that much who was a guarantor and who wasn't.  They ultimately are backed by ALL of the cash coming in.  It's not like non guarantors aren't still funneling money up to Holdings. 

 

At some point if enough guarantors OR non guarantors went under (including Sears and K-mart retail), it could cause Holdings to have insufficient funds to pay it's obligations and/or cause a coverage breach which required Holdings to buy back the debt in order to restore the appropriate coverage levels.  However if subs are dropping like flies, how do they do that?

 

So ultimately it would depend on which sub or subs went under.  If it's a random one, not sure it matters.  If it's Sears Retail or something then creditors would at some point likely be in a position to foreclose on the equity in the subs including the non guarantors.  If it's Holdings that goes under, same thing.  All the guarantor structure would mean is that non guarantors aren't obligated on the debt, but who cares? 

 

I am not even sure that the guarantor/non-guarantor structure even helps with the sale of entities.  The structure was pretty flexible in terms of who is required to be a sub.  It seemed to me pretty easy to sell one off or something so long as the coverage test is still met.

 

I am just not seeing what the guarantor/non-guarantor structure really gets anyone.  Would love someone that has a contrary view to speak up.  I think it's nice to be able to see where value resides in the holding co structure, but don't think of it as ringfencing prime assets or anything so that they are outside the reach of anyone other than shareholders.  That's not the case in any scenario. 

 

At the end of the day, if you believe in the value of the assets, it shouldn't ultimately matter what happens.  Even if liquidated, value should be there.  That is what I see.  I don't give a crap about all the Shop Your Way or anything like that and all of the 10,000 posts a day.  That's noise.  Shop Your Way is useless.  I would never use it in a million years.  The beauty of being an asset based investor though is I don't care.  In this case tear the structure down and divvy up the real estate and brands and tax assets. 

 

Sorry for the rambling post, hope it was helpful and coherent. 

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These things get complicated and simplistic statements (from me) tend to oversimplify a complex matter.  I personally believe that much has been attributed to the guarantor/non-guarantor issue then should be. 

 

Let me try to answer your question as best I can.  Sears Holdings is the ultimate parent and the entity which shareholders hold an equity interest in.  Holdings owns various subsidiaries, including the K-Mart Retail and Sears Retail entities.  In turn, both of those subs own various subs and so on. 

 

Holdings is the issuer of this debt.  Various subs are guarantors and various other subs are not guarantors.  I am sure you know all of this, I'm just trying to set it out so that a discussion can occur using the same framework.  Guarantees work in various ways, but essentially it means that if an obligor does not make good on an obligation the guarantor will be obligated to do so. 

 

As you know, a holding company generally only can get funds to pay its debts (and do whatever else it needs) in one of a few ways:  (1) borrowing or equity issuance, (2) dividend or interest income from existing investments or (3) dividends from subsidiaries.  Let's assume that Holdings needs money from its subs in order to pay current interest and ultimately pay off the principal.

 

The credit agreement doesn't have that many covenants in terms of which subs needs to guarantors and which don't.  I am sure this was heavily negotiated.  There are 2 ultimate protections.  One, it's a default if interest and principal isn't paid as required and two, there is a coverage test tied to the asset base (borrowing base which is essentially inventory and receivables, I believe).

 

So now we have a framework.  Forget about which entity is a guarantor for a second.  It gets money from all its subs as they have it and are able to pay subject to their own obligations (remember that dividends can't be paid up until subs own obligations are paid, but that's neither here nor there). 

 

Let's assume that a guarantor sub goes under for whatever reason, it doesn't matter what.  Let's assume this sub is not one of the "main" retail entities, but is just a random sub doing who knows what.  So now it is unable to pay amounts to Sears or K-mart retail, as the case maybe, and that's that much less than those can pay to Holdings.  Let's assume a non guarantor went under.  Same thing!  There's just that much less money to make it's way up the chain to Holdings.

 

From the standpoint of a creditor it probably didn't really matter all that much who was a guarantor and who wasn't.  They ultimately are backed by ALL of the cash coming in.  It's not like non guarantors aren't still funneling money up to Holdings. 

 

At some point if enough guarantors OR non guarantors went under (including Sears and K-mart retail), it could cause Holdings to have insufficient funds to pay it's obligations and/or cause a coverage breach which required Holdings to buy back the debt in order to restore the appropriate coverage levels.  However if subs are dropping like flies, how do they do that?

 

So ultimately it would depend on which sub or subs went under.  If it's a random one, not sure it matters.  If it's Sears Retail or something then creditors would at some point likely be in a position to foreclose on the equity in the subs including the non guarantors.  If it's Holdings that goes under, same thing.  All the guarantor structure would mean is that non guarantors aren't obligated on the debt, but who cares? 

 

I am not even sure that the guarantor/non-guarantor structure even helps with the sale of entities.  The structure was pretty flexible in terms of who is required to be a sub.  It seemed to me pretty easy to sell one off or something so long as the coverage test is still met.

 

I am just not seeing what the guarantor/non-guarantor structure really gets anyone.  Would love someone that has a contrary view to speak up.  I think it's nice to be able to see where value resides in the holding co structure, but don't think of it as ringfencing prime assets or anything so that they are outside the reach of anyone other than shareholders.  That's not the case in any scenario. 

 

At the end of the day, if you believe in the value of the assets, it shouldn't ultimately matter what happens.  Even if liquidated, value should be there.  That is what I see.  I don't give a crap about all the Shop Your Way or anything like that and all of the 10,000 posts a day.  That's noise.  Shop Your Way is useless.  I would never use it in a million years.  The beauty of being an asset based investor though is I don't care.  In this case tear the structure down and divvy up the real estate and brands and tax assets. 

 

Sorry for the rambling post, hope it was helpful and coherent.

 

Thanks for lengthy response.  I agree with your post.  I don't think the guarantees versus non-guarantees are doing much for you as an equity holder other than lowering your debt costs.

 

 

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Thank you for the feedback and the detailed responses.

 

The non-gaurantor subsidaries are profitable, but how do you know the non-gaurantor subsidaries would be profitable without the gaurantor subsidiaries being operational?

 

It currently costs over 12% to short and there are no shares available.  Why would someone want to spend so much money to short this company, if they didn't think the long thesis was empty? There is plenty of public write ups about this company's hidden value** 

 

http://1.bp.blogspot.com/-1p6eLoo9FJ4/Uh2x_E3pfpI/AAAAAAAAAb8/95_YJpxS3ZU/s640/SHLD+cost+to+short.jpg

 

** http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy

 

** http://www.fairholmefunds.com/sites/default/files/120815%20SHLD%20Presentation.pdf

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claphands, I think it would make more sense to look at the corporate structure in a tree structure, rather than looking at the guarantor/non-guarantor.

http://www.searsholdings.com/invest/docs/Sears_Re_February_2012.pdf

Page 7 here will be interesting because it outlines the basic structures, though we still need to figure out where are the rest 20 subs.

 

It looks to me that some guarantors have equity ownerships to non-guarantors, so if the guarantors sub goes under, the debtor can have claims to the equity interests of the non-guarantor subs, so I think looking at the structure from the tree view makes better sense.

 

For example, it appears that Sears Re is directly held by the parent. This means the retails subs can go under and shareholder can still have Sears Re. But how much is it worth? I can't find any data. Someone online said its float is more than the SHLD market cap, but I don't know how to verify that.

 

 

Here is a better view of their basic corporate structure. But I wish I could see more details.

http://www.sec.gov/Archives/edgar/data/1310067/000119312512114869/d276653dex21.htm

 

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  • 3 months later...

For example, it appears that Sears Re is directly held by the parent. This means the retails subs can go under and shareholder can still have Sears Re. But how much is it worth? I can't find any data. Someone online said its float is more than the SHLD market cap, but I don't know how to verify that.

 

Has anybody been able to find anything useful on Sears Re's float?  Thanks.

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Guest hellsten

For example, it appears that Sears Re is directly held by the parent. This means the retails subs can go under and shareholder can still have Sears Re. But how much is it worth? I can't find any data. Someone online said its float is more than the SHLD market cap, but I don't know how to verify that.

 

Has anybody been able to find anything useful on Sears Re's float?  Thanks.

 

I googled and found this:

http://www.rickackerman.com/wp-content/uploads/2013/10/Porter-Stansberry-Report-on-Sears-Holding-Corp.pdf

 

I haven't read it yet, so I don't know if it's a joke or serious research:

He is slowly transforming these wasted assets into a

massive reinsurance firm. He is following Buffett’s precise playbook.

And so far... almost no one knows it.

 

Today, Sears Reinsurance holds an incredible $35

billion in assets. Very few people know anything about

this insurance company. And since it’s not publicly

traded, Sears Reinsurance largely flies under the radar.

 

Edit: the article is very well written; one of the best that I've read about SHLD. The author is bullish on SHLD, so bears won't agree with much of what is said. JCP is also mentioned…

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I'm confused - how does Sears RE have $35B in assets yet SHLD itself only has $20B? Can insurance assets be held OBS?

 

Page 6 of the article: "It would seem that, with $35 billion in assets, Sears Reinsurance must certainly be engaged in business outside Sears and Kmart risks... but company filings are largely mum on the topic."

 

hellsten, excellent find.

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For example, it appears that Sears Re is directly held by the parent. This means the retails subs can go under and shareholder can still have Sears Re. But how much is it worth? I can't find any data. Someone online said its float is more than the SHLD market cap, but I don't know how to verify that.

 

Has anybody been able to find anything useful on Sears Re's float?  Thanks.

 

I googled and found this:

http://www.rickackerman.com/wp-content/uploads/2013/10/Porter-Stansberry-Report-on-Sears-Holding-Corp.pdf

 

I haven't read it yet, so I don't know if it's a joke or serious research:

He is slowly transforming these wasted assets into a

massive reinsurance firm. He is following Buffett’s precise playbook.

And so far... almost no one knows it.

 

Today, Sears Reinsurance holds an incredible $35

billion in assets. Very few people know anything about

this insurance company. And since it’s not publicly

traded, Sears Reinsurance largely flies under the radar.

 

Edit: the article is very well written; one of the best that I've read about SHLD. The author is bullish on SHLD, so bears won't agree with much of what is said. JCP is also mentioned…

 

I read that a while back. It has some serious flaws and demonstrates a complete lack of understanding about what is possible in securitization.  A party cannot form a special purpose vehicle, dump their best assets in it and claim the assets are ringfenced. Doesn't work that way.

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Guest hellsten

I read that a while back. It has some serious flaws and demonstrates a complete lack of understanding about what is possible in securitization.  A party cannot form a special purpose vehicle, dump their best assets in it and claim the assets are ringfenced. Doesn't work that way.

 

Thanks Kraven. Anyone know where he got the $35 billion figure from? IMO, the article sounded too bullish, but it still gives a very good overview of Sears and JCP.

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Yeah I would love to get on board with this thesis, but then I ask myself how much cash did he just set aflame in SYWR and online retailing efforts and how does that square with a machiavellian scheme to constrain investment in retail and transition to an insurer?  Also, they point out how SHLD created all these assets by securitizing the real estate and the intangibles then gush over the fact that there are assets in the sears re.  I don't get it.  Didn't they just essentially transfer some assets in a related party transaction and mark them to market and overlay some securitization?  Sounds a little like talking crap mortgages sticking them into an entity  and blending them into AA credits.

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Is the following guy the editor of that research?

 

http://en.wikipedia.org/wiki/Porter_Stansberry#SEC_prosecution

 

 

I'm confused - how does Sears RE have $35B in assets yet SHLD itself only has $20B? Can insurance assets be held OBS?

 

 

I think he got it from page 108.

 

http://www.sec.gov/Archives/edgar/data/1310067/000131006713000013/shld201210k.htm

 

 

Yeah I would love to get on board with this thesis, but then I ask myself how much cash did he just set aflame in SYWR and online retailing efforts and how does that square with a machiavellian scheme to constrain investment in retail and transition to an insurer?  Also, they point out how SHLD created all these assets by securitizing the real estate and the intangibles then gush over the fact that there are assets in the sears re.  I don't get it. Didn't they just essentially transfer some assets in a related party transaction and mark them to market and overlay some securitization?  Sounds a little like talking crap mortgages sticking them into an entity  and blending them into AA credits.

 

 

I think the theory is that SHLD will spin out Sears Re at some point.

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