Investor redemptions last year cost ESL Investments a majority stake in Sears Holdings. Now, they may have cost the retailer some key financial support from its controlling shareholder.
Sears has all-but stopped issuing short-term commercial paper because ESL has stopped buying it, as it has done for the past five years. Sears has just $9 million in such debt, none of which is held by ESL. Last year, Sears had $345 million outstanding, more than 80% of it held by the hedge fund.
Pressure from investor redemptions—Lampert paid out those $3.5 billion in withdrawals with Sears shares in the fourth quarter—may be forcing ESL to stop financing Sears’ day-to-day operations with the IOUs.
ESL founder Edward Lampert serves as Sears’ CEO and engineered its merger with Kmart Holding nine years ago. Since that time, Sears has seen 28 straight quarters of declining sales.
“Their liquidity picture overall has not improved over the course of the past several years, and it hasn’t improved because the core operations of Sears are an absolute disaster,” International Strategy & Investment Group’s Matt McGinley told Bloomberg News. “For the investor who still uses the investment thesis that Eddie Lampert is a smart guy: Well, Eddie Lampert is a smart guy and, guess what, he’s reducing his exposure to Sears.”