Sears has to come up with $134 million very quickly.
Sears Holdings (SHLD), the parent company of Sears and Kmart, faces a Monday deadline to pay that much in debt.
The most recent filing from Sears showed it had only $193 million in cash on hand as of August 4, the end of its last fiscal quarter. The company also has $269 million available to it from lenders, according to figures it released on September 13.
Having so little cash available would make it very difficult for Sears to pay back $134 million in debt due on Monday. Plus, Sears also has to pay its current vendors and employees and stock up inventory before the holidays.
All signs point to a bankruptcy filing in the next few days. Sears’ stock has fallen more than 50% in the last five trading days to around 35 cents a share.
Three companies that sell items at Sears told Reuters this week that Sears had missed payments to them over the past few weeks. One of Sears’ major shareholders recently dumped a chunk of his stock for pennies on his original investment. The company added a new director this week who is familiar with bankruptcies and restructuring.
And reports are swirling that the company is talking to advisers and banks in preparation for a bankruptcy filing. According to the Wall Street Journal, Sears has hired M-III Partners, a boutique advisory firm specializing in seeing companies through bankruptcies and restructuring, The company is also talking to lenders about providing it with debtor-in-possession financing, CNBC reported. That kind of loan is used by companies that file for bankruptcy to fund operations during the process. Usually, funding is secured well before the final days.
Companies that file for bankruptcy typically negotiate a special kind of loan to stay in business while they go through the bankruptcy process. There are several reports that Sears is in talks for that kind of financing, but negotiations don’t appear to be going well.
The company’s lenders are encouraging Sears to shut down and liquidate, the Wall Street Journal reported Thursday. Sears’ management has reportedly said it hopes to use Chapter 11 of the bankruptcy law to stay in business rather than Chapter 7, which leads to closing.
If Sears does file for Chapter 11, the company could try to stay in business, using the court process to shed debt and unaffordable leases. It could attempt to emerge as a profitable company. But the retail landscape is littered with brands that tried to reorganize in the bankruptcy process and liquidated their businesses instead, such as RadioShack, Toys “R” Us and Sports Authority.
Sears and Kmart merged to form Sears Holdings in 2005, when they had 3,500 US stores between them. A long series of store closings has left it with under 900 today.
In July Sears closed its last store in Chicago, once its hometown. The company recently announced another 46 store closings that will take place just before the start of the holiday shopping period.
Sears and Kmart had 89,000 employees as of February 3 of this year, according to a company filing.