Sears Holdings Corp. is preparing to file for Chapter 11 bankruptcy protection in the coming days following years of declining sales, sources said on Wednesday, casting doubt over the survival of what was once the world’s largest retailer.
The bankruptcy filing would end a standoff between CEO Eddie Lampert, the retailer’s biggest shareholder and lender, and a special board committee the company has formed to consider a rescue plan proposed by Lampert that would involve asset sales and a debt restructuring.
The company no longer operates Sears or Kmart stores in the Corridor.
The committee has been resisting the plan amid concerns that creditors and shareholders would sue over it being too favorable for Lampert.
His history of financial engineering at Sears for more than a decade through deals tied to his hedge fund ESL Investments now could be subjected to new scrutiny by Sears’ creditors in bankruptcy court, according to the sources.
Both Lampert and the Sears special committee now accept that only a court-supervised process can determine the company’s future, one of the sources said. Talks are underway to arrange debtor-in-possession financing for a bankruptcy filing that could come in the next few days, the sources added.
CNBC first reported on the debtor-in-possession financing talks, while the Wall Street Journal first reported on Sears’ bankruptcy preparations.
A $134 million debt payment that Sears has to meet on Monday has added pressure on both Lampert and the special committee to find a resolution.
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Lampert had told the special committee he would not help the company fund that obligation unless it agreed to his plan, the sources said.
The sources asked not to be identified because the matter is confidential. Spokespeople for Lampert and Sears declined to comment.
At its peak in the 1960s, Sears sold everything from toys and auto parts to mail-order homes, and was a key tenant in almost every big mall across the United States.
But it has struggled to reinvent itself in the face of online competition and other brick-and-mortar retailers.