Sears Investor Fairholme Says Unit Steps Back From Loan

By Nick Turner and Laura J. Keller

Sears Holdings Corp. (SHLD) shareholder Fairholme Funds Inc. said its affiliate St. Joe Co. (JOE) backed away from providing as much as $100 million in financing to the retailer after a second lender materialized.
“The St. Joe Co. was unable to agree on terms for such a participation in light of its investment criteria and has declined the opportunity to participate,” Fairholme said in a regulatory filing today. Bruce Berkowitz’s Fairholme, which has a 23 percent stake in Sears, according to the filing, also owns 27 percent of St. Joe, according to data compiled by Bloomberg.
ESL Investments Inc., the hedge fund controlled by Sears Chairman and Chief Executive Officer Edward Lampert, remains 100 percent committed to
backing the loan, regardless of the other parties involved, said Steven Lipin, a spokesman for the firm.
ESL agreed on Sept. 15 to fund a three-month $400 million loan secured by 25 properties to the retailer, according to a filing at the time. ESL lent Sears $200 million that day and plans to provide the rest on Sept. 30, according to that filing.
St. Joe couldn’t reach an agreement because it wanted better terms on the loan to the troubled retailer, which has suffered 30 straight sales declines. While Fairholme won’t provide a large portion of a $400 million loan, PYOF 2014 Loans LLC has stepped in, offering $50 million, according to a regulatory filing yesterday by ESL.
Berkowitz and Chris Brathwaite, a spokesman for Hoffman Estates, Illinois-based Sears, declined to comment.

Quarterly Losses

Sears has been was raising additional funds as its business deteriorates. It posted a second-quarter loss of $573 million last month on sales that declined 9.7 percent and said it would seek more long-term capital-structure flexibility from lenders. Fitch Ratings projected in a Sept. 16 report that it will run out of cash in 2016 without at least $4 billion of new capital.
St. Joe is continuing discussions to potentially provide a smaller amount than the $100 million it originally considered funding, according to the filing today.
“It’s not as easy as Sears expected to place even supposedly well-collateralized debt,” Erik Gordon, professor at the Ross School of Business at the University of Michigan in Ann Arbor, said in an e-mail. “Sears now looks even weaker to creditors and potential lenders.”
The company should have “ironed out privately” who the lenders would be before making the loan public, Gordon said.
Sears shares fell 2.8 percent to $25.66 in New York.