Sears bankruptcy creditors say boss Eddie Lampert may have taken advantage
Sears Holdings chairman and investor Eddie Lampert may have taken advantage of the plunge into bankruptcy, alleged Tuesday a group of creditors.
A committee organized to represent the retailer’s unsecured creditors in court accused Lampert and his hedge fund ESL Investments of potentially structuring deals to gain an unfair advantage as the company declined.
They “could have exercised undue influence to embezzle the value of the company on favorable terms,” the group of creditors said in a court filing.
The group also said Lampert could have leveraged his “insider status to secure an ever-growing percentage” of Sears debt, allowing him to “secure advantageous positions” in the retailer’s Chapter 11 bankruptcy. chapter 11.
USA TODAY reported in June that Sears was giving Lampert and its funds approximately 200 to 225 million dollars per year in debt payments.
Sears representatives declined to comment.
Lampert’s ESL said in a statement that the hedge fund “has always supported Sears Holdings in its efforts to transform and return to profitability during a period of rapid change and disruption in the retail industry.”
“We are confident that all transactions involving ESL and Eddie Lampert are valid and enforceable, on the basis of just and reasonable terms, which have been approved by independent directors who have been advised by independent financial and legal advisors and which included other appropriate corporate governance procedures, ”he added. says hedge fund. “Any legal claim that attempts to challenge these transactions will be without merit and we will vigorously defend against any claimed claim.”
Lampert, who served as CEO from 2013 until the company filed for bankruptcy last month, has provided billions in financing to Sears. He also owns interests in various assets previously owned by Sears, including valuable real estate transferred in 2015 to a real estate investment trust called Seritage Growth Properties.
“No one should be shocked that he is using transactions to lend money to Sears – the issue is whether these transactions were made at arm’s length and on commercially reasonable terms?” said Philip Emma, senior analyst at Debtwire, which provides information and analysis on corporate and municipal debt.
The Seritage deal was particularly suspect, according to the group of unsecured creditors.
The committee said its review of the deal shows that it “appears to be at discounted prices” and that subsequent sale-leaseback agreements with Sears contained “adverse and onerous terms” for the ailing retailer.
Sears paid Seritage $ 90.8 million in annual rent for 151 leases, or $ 4.73 per square foot, according to at a Seritage public repository.
Representatives for Seritage were not immediately available for comment on Tuesday.
The creditors’ group is asking a judge to force Sears to waive documents related to the transactions in question, including $ 2.4 billion in debt held by Lampert through its investment funds, including ESL.
Emma from Debtwire said creditors typically pull all the levers available in bankruptcies to try and get paid. It is therefore “not unexpected” that they bring these accusations given Lampert’s history of lending to Sears.
What is “quite unusual,” he said, is that Lampert acts simultaneously as debtor, investor, lender, owner and seller.
Sears filed for Chapter 11 bankruptcy in October, hoping to deleverage and close more than 180 unprofitable stores in a bid to stay open as a small business. It had 687 stores at the time of filing, including its Kmart discount stores.
ESL of Lampert owns nearly 50 percent of Sears. He organized the merger of the company with Kmart in 2005 and has served on its board of directors ever since. He stepped down as CEO when the company filed for bankruptcy.
In the last few months leading up to the Chapter 11 filing, Lampert proposed that his hedge fund buy the Sears Kenmore brand of devices, but no deal was reached.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.