Why Sears has 18 months-2 years tops - assesment

... couple of points-it does matter how many assets are left since that determines how long the company has left at cash burn.

You are partly right about the reinsurance- 125 stores were placed into it to cover any portion of the deficit not covered by kcd. We believe that the proceeds from crafsmen will go to the pbgc, and that will cover the contributions for 2016. That still leaves the $2.1 billion deficit. K and d are proving problematic to sell and most likely any sale would be used to cover 2017's pension contribution around $600 million.

That still leaves the deficit- you state that the 125 stores were the very best real estate left. There is no basis for that statement, however, lets say that was true and each one is worth an average $20 million. At that level the 125 stores would only just cover the deficit- leaving nothing left in a bankruptcy.

Now some reality that you have missed, some of those 125 stores have been pledged and sold off already- that was in the agreement that with the pbgc's blessing some of the stores could be monetised and they have been. When Sears canada was split off - sears re-insurance had covered them- a new liability scheme was introduced so we got to see what was in the re-insurance comany and it was very little.

FWIW, my assesment of whats left is 206 properties worth $2 billion, kd worth $750 million, sears home services worth $500 million, innovel solutions worth $1 billion sears auto centres worth $500 million. I think i have been generous. Lets round up to $5 billion in assets.

I expect the 4th quarter loss will be $1 billion for a full year loss of circa $2.4 billion. 2017 will be worse but lets say $2.5 billion needed to cover losses. There is a $500 million loan due in July, $600 million pension contribution due in 2017 and a few smaller loans due (lets leave those out of it. So $3.6 billion needed this year. If they could sell all the assets and use them soely to keep the lights on, they would enter 2018 with $1.4 billion of assets or cash left. That would last 6 months or so.

This is why I think sears has 18 months-2 years if it sells absolutley everything and cannot reduce its cash burn.

Just my thoughts not intended to offend anyone. Peace and good luck all.

This was posted as a reply on another thread. It's a good read and makes a lot of sense, so I thought it deserved to be more visible.

Originaly posted @LCm4slP-2igb

Comment! It's anonymous!

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I think that's a good assessment and the OP states his assumptions well. It's IF they are able to sell everything and cash burn stays the same. Now given SHC's inevitable response to bad financial results will be further destruction of the business by cost and inventory cutting it's very possible losses will get worse. And it's quite possible they won't be able to sell some of this garbage. 18-24 months if everything goes well. Less time if things don't go quite so well. The only certainty is eventual collapse of this broken company. Timing is the only question.

OP here- thanks for the comments- i was trying to be generous with the valuations. As of 2014 the net book value from their sec filing showed the kcd having a net book value of $1 billion. Now the npv deal of the craftsmen was circa $600 million. So that levaes $400 million for k and d- that may be a little low but its in the ball park. The real estate in the bankruptcy remote had an net book value of $700 million for the 125 stores. There was a provision that sears could sell upt to 10 properties to not exceed $75 million in proceeds- which ties up somewhat with the valuation. Peopple have stated the 125 stroes are the very best real estate and that even after clearing the penion deficit there would be significant equity left- that seems untrue since even if there was equity left i would all go to the pbgc to cover future pension contributions- remember as well as the $2.1 billion deficit Sears has to contribute curca $600 million a year just to keep the plan stable at $2.1 billion absent of any interest rate rises- fyi a 1% interest rate rise reduces the deficit by circa $600 million but i doubt the comoany wil be around long enough to benefit from significant interest rate hikes.

Innovel has distribution centres as well as the trucks and even though the majority of the business is sears - someone may want it. just lile the real estate i upped the figures to give some wiggle room for a more than realsiitc timeframe of how much longr the company has left. I wanted to show how the current cash burn will take care of all the remaining assets, never mind the rest of the $3 billion loan, the various secured loans to eddie and of course the pbgc.

I left out the pension deficit since i have over optimistically assumed that the 125 properties could cover that - which seems unlikely. I have also left out any value of the inventory since its all pledged as security for loans.

.... The auto center's are worth ZERO they have yet to get one bite on the biz . innovel solutions is a horrible rated biz that consists of 1200 trucks no where near worth one billion maybe 300-400 million and i doubt that.

" kd worth $750 million" Kenmore ain't worth nowhere near 1/2 that amount why would someone want to buy appliances made from same manufacturer that makes the same schitt under other "brand" names -- BRAND NAME - BFD

Sears does not manufacture any of their products, instead they are all made by the other leading manufacturers, often with added features. They are then rebranded with the Kenmore (or other) brand name.

Notably are: most laundry products and dishwashers made by Whirlpool, lower end front load washer and matching dryer by Frigidaire and many range models by GE or Frigidaire.

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Why Sears has 18 months-2 years tops - assesment

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