ESL Gives Sears $400 Million Lifeline

Sep 16 2014 | 11:09am ET

Hedge fund ESL Investments has loaned $400 million to its largest investment, Sears Holdings Corp., a cash infusion that will keep the struggling retailer afloat through the holiday season.

Affiliates of ESL, whose founder, Edward Lampert, serves as Sears’ CEO, made the loan, which is due on Dec. 31 and is secured by 25 of Sears’ properties. The loan can be extended until the end of February.

The financing was needed after Sears burned through nearly $1 billion over the past six months. ESL owns about 48% of the retailer and was, until earlier this year, investing millions in the company by buying its short-term commercial paper.

Sears received half of the money yesterday and will get the rest on Sept. 30 if it meets certain conditions. It paid a 1.75% up-front fee and will pay an annual interest rate of 5%.

Sears has posted consecutive quarterly losses for more than seven years, and is now working with creditors to evaluate its capital structure. The company is also closing stores and selling assets.

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